Shareholder stub offered one last chance to take CMA CGM’s offer before eventual squeeze out and delisting of Ceva shares.
CMA CGM now owns almost all of Ceva Logistics after the former’s public tender offer for shares in the Swiss logistics company. Ceva Logistics’ board now recommends that remaining shareholders sell their stake to the container ship owner.
The squeeze-out of the last shareholders marks the beginning of the end of Ceva Logistics’ tenure as a public company and brings CMA CGM closer to being an integrated logistics player, adding trucking and warehousing expertise to ocean shipping. It’s a strategy other ocean carriers are pursuing to move away from a commodity transport service. But some see the move as a risky, leveraged bet on another sector that faces its own competitive pressures.
Ceva (SIX: CEVA) said 21.4 million shares of its shares were sold to CMA CGM during the one-month tender period that ended March 13. CMA CGM, along with its allied shareholders, now hold 49.3 million shares of Ceva, representing just under 90 percent of the shares outstanding.
CMA CGM directly held 33 percent of Ceva prior to the tender offer, while “certain banks” held another 17.6 percent. Ceva’s bank shareholders include Goldman Sachs (NYSE: GS) and Societe Generale (Euronext: GLE.FP), along with asset managers Capital Group Companies and Franklin Resources.
The ownership stake is enough that CMA CGM can force a compulsory sale of the remaining shares and a delisting of Ceva from the Swiss stock exchange, Ceva said, which could occur by the third quarter.
As a result, Ceva’s board recommends that the remaining shareholders take CMA CGM’s offer of approximately $30 per share over the next tender period to avoid a squeeze out. Ceva’s board initially did not recommend that shareholders tender their shares, arguing the company was worth closer to $40 per share.
With CMA CGM’s bigger stake, its Chief Executive and Board Chairman Rodolphe Saade will likely be Ceva’s next Chairman too. CMA CGM will also keep three independent directors on Ceva’s board.
CMA CGM’s move to fold in Ceva came after a disappointing year for its other shareholders. Ceva reported operating margins of 2.7 percent for 2018, well below peers such as DSV (Nasdaq OMX: DSV) and Kuehne + Nagel (SIX: KNIN), due to problems with its Italian contract logistics business and accounting estimate changes.
At the time that CMA CGM first announced its interest in fully acquiring Ceva last October, Saade said that the companies together would benefit from cross-selling opportunities from having an end-to-end logistics offering, covering ocean, land and air.
In folding Ceva into CMA CGM, Saade said the goal is to “accelerate [Ceva’s] required transformation and to make it a more profitable and efficient leader in logistics.”
But CMA CGM’s deal for Ceva also coincides with its acquisition of regional carrier Containerships and ongoing capital expenditures for its own vessel fleet. Last year, rating agency Moody’s downgraded its credit outlook on CMA CGM to negative due to added debt from the Ceva deal, which may not provide the profitability boost anticipated.
Management consultancy AlixPartners noted that profit margins for most third-party logistics companies fell last year despite overall higher revenue.
The race to consolidate the logistics sector means buyers may be paying too high a price for their targets and taking on more debt than they can handle, the report added.
“In the face of such constraints, ocean carriers that follow through with acquisitions face a sizable challenge to make those deals pay by wringing every possible efficiency out of the combined companies,” AlixPartners said. “The container shipping industry’s track record in post-merger integration is spotty at best, and its recent efforts to curtail SG&A costs do not inspire confidence.”