Proxy adviser Glass Lewis recommends Sats shareholders approve WFS acquisition

PROXY advisory firm Glass Lewis said in a report published last Friday (Jan 6) that it believes the strategic and financial rationale for Sats ’ acquisition of WFS is “largely sound”, and that it recommends Sats shareholders approve the deal.

In its report on the deal, the firm noted that the move to acquire WFS could give Sats positions in strategic hubs that connect key trade lanes across North America and Europe, which will complement the company’s current presence in the Asia-Pacific region.

“The deal should provide the company with enhanced scale, expanded geographic reach and greater business diversification,” the firm said.

“The deal should also put the company in a better position to accelerate its growth as it seeks to become a leading global air cargo handler,” it added.

As for the deal valuation, Glass Lewis calculated that the proposed transaction had a last 12-month (LTM) earnings before interest, tax, depreciation and amortisation (Ebitda) multiple of 12 times and a LTM adjusted Ebitda multiple of 11.1 times. The figures were calculated based on the negotiated enterprise value of the proposed transaction of 2.3 billion euros (S$3.3 billion) and WFS’ most recent financials through Sep 30, 2022.

Its own assessment of 14 completed transactions announced since 2018 in the airport services or air freight and logistics industries found that the deal’s LTM Ebitda multiple and LTM adjusted Ebitda multiple ranked in the 55th and 52nd percentile, respectively.

The adjusted Ebitda figure taken was inclusive of business tax and adjustments for non-recurring items.

Based on S&P Capital IQ data, Glass Lewis also found that the trailing Ebitda margin and adjusted Ebitda margin of WFS of 9.7 per cent and 10.5 per cent for the LTM period ended Sep 30, 2022 are largely consistent with the median trailing Ebitda margin of the transactions it examined, which stood at 9.5 per cent.

It also noted that the company still has access to other funding sources to fully fund the proposed transaction, including the acquisition bridge facility of S$1.7 billion to fund and complete the proposed acquisition.

“If the company ultimately decides to proceed with the proposed rights issue, we note that the company’s existing shareholders will at least have the opportunity to participate in such rights issue on a pro rata basis, thereby mitigating the equity dilution,” Glass Lewis said.

In a separate report on Jan 5, proxy adviser ISS Governance also recommended that Sats shareholders approve the deal and said that it considers the deal an “effective investment opportunity”.

Sats shares closed 0.4 per cent or S$0.01 lower at S$2.83 on Tuesday (Jan 10).