HNA Group is looking to add another missing piece of the puzzle to fulfil its ambition to become a global logistics powerhouse after it agreed to acquire CWT, the Singapore-listed integrated logistics and supply chain management company, for S$1.4 billion ($981 million).
The acquisitive Chinese conglomerate rounded off a prolonged discussion process on Sunday by making a S$2.33-a share offer through its Hong Kong-listed subsidiary HNA Holding Group, ending talk that the deal might be scrapped due to Beijing’s stepped-up efforts to rein in capital outflows.
The offer represented a 12.5% premium over Thursday's closing share price and prompted a 9.2% jump to S$2.26 on Monday.
By making its first foray into the international logistics market, HNA’s all-cash offer will allow it to access CWT’s global freight forwarding network, with connectivity to around 200 direct ports and 1,600 inland destinations in more than 90 countries.
The new assets will form the land and sea freight routes of HNA’s logistics business and complement its already large airline network, which includes the group’s flagship Hainan Airlines as well as Hong Kong Airlines and Brazil’s Azul Airline.
In a company statement, HNA said the acquisition will help it to benefit from Beijing’s One Belt, One Road initiative by expanding its geographical reach and deepening relationships with foreign companies.
Big interest
Just how important the new assets are to HNA’s global logistics ambitions can be seen by the way it approached the transaction. The Chinese group has shown interest from day one, according to a source familiar with the situation, after the company was put up for sale in mid-2015.
“HNA moved quickly to express an interest and was the first to issue a letter of intent at the early stage of the auction process,” the source said.
The group has also bid aggressively. It offered to buy CWT shares at a 13.1% premium to market price, or a historical EV/Ebitda multiple of 15.8 times. That was well above Japan Post's bid for Toll Holdings in 2015, which valued the Australian logistics company at 10.7 times EV/Ebitda.
HNA's $1.4 billion offer is about 58% higher than CWT’s net asset value of S$874 million as of the end of last year. That was also much higher than CMA CGM's offer for Singaporean shipping company Neptune Orient Lines, which was completed at a 4% discount to book value.
HNA’s bid is higher than most rival bids and seen by CWT’s founding families as a very generous offer, the source told FinanceAsia, without disclosing what other would-be-buyers were willing to pay, including Japan Post, Nippon Express, Kerry Logistics, as well as private equity firms Bain Capital, Blackstone, and KKR.
But HNA did not win simply on price. According to the source, CWT’s three founding families also chose HNA because the Chinese group has a proven track record of closing large acquisitions. “The founding families have chosen HNA because they believe it can deliver and complete the transaction,” the source said.
The Hainan-based conglomerate has been one of the most aggressive Chinese buyers of offshore assets in recent years, sealing high-profile acquisitions including a $6 billion offer for electronics distributor Ingram Micro and another $2.5 billion deal for Irish aircraft lessor Avolon.
Prolonged process
HNA entered into an exclusivity agreement with CWT’s three founding families in May 2016, but an official bid was not made until nearly a year later.
The sale process dragged on mainly because of CWT’s non-logistics assets, including commodities marketing firm MRI Trading and its financial services business, the source said. The deal advisers proposed multiple deal structures, such as carving out the businesses from the listed company. But in the end HNA agreed to buy all the businesses, seeing them as platforms to develop new opportunities in supply chain financing and financial technology, the group said in the statement.
By acquiring CWT in full, HNA will also take a 40% stake in the management company of Singapore-listed Cache Logistics Trust.
Approvals
Due to CWT’s extensive geographical reach, HNA will need to navigate a complex series of approvals from anti-trust regulators including those in China, the European Union, Japan, South Korea, Turkey, and Taiwan, according to the company statement.
HNA will need to secure all approvals before the September 9 long-stop date.
The transaction does not require shareholder approval since CWT’s founding families have already agreed to tender their combined 65.13% stake to the buyer, which are sufficient to meet the minimum threshold of 50% acceptances.
HNA said it will proceed with a compulsory acquisition and delist CWT from the Singapore exchange if it receives over 90% of acceptances, or keep it as a public company if acceptances fall below that level.
Credit Suisse and DBS are advising CWT and the founding families, while Barclays and RHB Investment Bank are advising HNA.
