CVC continues international consolidation of postal services

The European buyout firm is becoming a junior partner in the merger of the Swedish and Danish postal services alongside their respective governments. It said it is prepared to hold its investment for another five years or more.

CVC Capital Partners-backed Post Danmark is merging with its Swedish rival, the state-owned Posten, creating a group with revenues of approximately Skr45 billion ($7.51 billion; €4.79 billion), according to a statement.

CVC, the Danish state and the employees of Post Danmark are taking a 40 percent stake in the combined group, while the employees of Posten and the Swedish state will own the remaining 60 percent. Posten will also pay an extraordinary dividend of Skr1.4 billion to the Swedish state. The Swedish state will have voting rights equal to CVC and the Danish state.

Soren Vestergaard, a partner at CVC, said the deal would have to be sanctioned by both the Swedish and the Danish parliaments. The financing terms will have to be decided after the deal receives clearance from both governments, he said.

The traditional postal businesses will remain under the respective Posten and Post Danmark brands in the two countries. Otherwise the group will merge its logistics and other divisions. Post Danmark’s 25 percent ownership of Belgian postal service De Post-La Poste will be acquired by the company. CVC and Post Danmark together acquired a 50 percent stake, less one share, in De Post-La Poste for €300 million in 2006.

CVC acquired its 22 percent stake in Post Danmark for Dkr1.27 billion ($267 million; €170.2 million) in June 2005.

Criticism of private equity firms partnerships with government’s have often focussed on the profits large groups have made. Last year the UK’s National Audit Office said the government could have secured “more for the taxpayer” when it sold a 33.8 percent stake in UK technology group Qinetiq to The Carlyle Group. Carlyle subsequently made a 112 percent internal rate of return over three years following the UK technology group’s £1.3 billion flotation on the London Stock Exchange.

But CVC intends to hold its postal investment for five years from now, Vestergaard said. “We see this as a very attractive proposition and there is strong business logic. We’ve always said it’s a longer term hold proposition.” The potential eight years or more hold time since CVC first invested in Post Danmark differs to conventional private equity investments of three to five years. “As long as we can create value for our investors we would strive to do so,” he said.