1. The Case of DB Schenker and BAX Global MariyaArnaudova Organizational Design for Networks Fall 2010

2. Schenker in 2004: Leading International Logistics Service Provider I. Prior to Acquisition 1. Schenker 2

5. Drivers of global economy: US and Asia with strong economic growth 3

6. Schenker in 2004: Strengths, Weaknesses, Opportunities and Threats Analysis I. Prior to Acquisition I. Prior to Acquisition 1. Schenker 4

7. Schenker in 2004: Business Performance Services offered: Transportation: Air Land Sea 2. 3PL 3. Value-added services Customers: 1. B2B (automotive, high-tech industries) 2. “Official supplier” of customs clearance and forwarding for the International Olympics Committee at the 2004 Olympic Games in Athens 3. EU enlargement possibilities I. Prior to Acquisition I. Prior to Acquisition 1. Schenker Strong performance of Schenker, overshadowed by Railion 5

9. Headquarters: Irvine, California

10. Number 1 heavy-lift cargo businesses(US)

11. Among the 20 largest US logistics companies

12. Presence: 130 countries(America and Asia)

13. Employees: 11 500 people

14. Revenue: $2.4 billion (2004)

15. Operating Profit soared to $56.2 million(2004) from $3million(2003)

16. Unit revenue: $2.44 billion2. BAX Global BAX Global Revenues ($ millions) 6

18. Reasons for M&A Activity M&A Classification Reasons for M&A according to Ansoff: Instability of market  quick market entry (2) Need of competent management (3) Need to enlarge capacities (4) Cheaper product developed outside II. Why Acquisition? 1. Explanation 1 Theory However, still a great number of M&As were unsuccessful...  8

20. Management styleObjective, financially efficient Subjective, motive-driven Level of goal attainment Level of position among competitors Level of satisfaction Change of Return on Investment Change of Return on equity Change of company value II. Why Acquisition? Strategies vs Market place 1. Explanation 1 Theory Studies found that firms in the same industry tend to merge more frequently  Reduce competitive uncertainty 9

21. Resource-based view applied to M&As Becker 2005 M&A Success Resources Fit “Resources are the tangible and intangible entities that enable the firm to produce efficiently and/or effectively a market offering that has value for some market segment or segments” Sourcing fit Organizational core resources functional Subjective motive-driven M&A success Research and Development fit Service provision fit Objective financial and economic success of M&A Sales fit Organizational cultures fit intangible II. Why Acquisition? Corporate cultures fit 1. Explanation 1 Fit of company image Reputational assets Theory Level of Integration Fit of customer structure Situation Factors Becker (2005): the more similar the resources fit, the more successful the M&A activity is 10

23. Relevant expansion of network

24. Similar/same industry

26. Same industry customers (automotive, high-tech, etc)Fit of customer structure 11

27. M&A Theoretical Analysis 2. Explanation 2 12

28. Mega-Carriers Trend “Customers are asking more and more for global or pan- regional services and this, as well as the low prices for acquisition targets, is leading to a strong consolidation trend.[...] A lot of these purchases are part of a strategy to conquer the world'' Thijs Berkelder Petercam(Amsterdam) Reasons for Large Scale Economies: -globalization and international presence -offer full array of intermodal transportation capabilities -possibility of IT integration -offer tracking and tracing services -easier to comprehend the extent of logistics costs -Logistics Market status quo 2. Explanation 2 In-Practice Consolidation: -Deutsche Post acquired DHL international(2000) and Exel(2005) -Kühne&Nagel takes over ACR(2006) -Maersk buying P&O Nedlloyd (2006) -Deutsche Bahn acquires Stinnes AG(2003) 13

29. Post-Acquisition Activities Figures Operating Profit €27 million -increase in Transport and Logistics revenue by 27.1% -BAX contributed with € 2 629million -shift in revenue in Asia/Pacific from € 816 million to € 2, 180 million Operating expenses: -€1, 905 million(cost of materials) -€ 39million (personnel expenses) -€274 million(other) Further Course of Action: -Schenker and Bax merge in Malaysia(2008) -Offering full service for event logistics(2009) Complete integration(2009) -Charges against Schenker and BAX(2010) III. Post-acquisition Schenker's International Presence Growth 14

30. References Academical Articles/ business reports: -S. Bologna, “Business strategies of the Third Party Logistics Service Providers”, University of Gdansk, 2007 -Deutsche Bahn AG, Deutsche Bahn Annual Report 2005, 2006 -Deutsche Bahn AG, Deutsche Bahn Annual Report 2006, 2007 -F. Green, W. Turner, S. Roberts, A. Nagendra, E. Wininger, “A Practitioner's Perspective on the Role of a Third-Party Logistics Provider”, Journal of Business & Economics Research- June 2008, 2008 -C. Langley Jr. and Capgemini, “The State of Logistics Outsourcing. 2007 Third-Party Logistics(Results and Findings of the 12th Annual Study)”, 2007 -H. LIN and G. GAO, “The Approaches of development Advanced Third Party Logistics Service for the Medium-sized Third party Logistics Service Providers”, School of Economy&Management, Shanghai, 2009 -B. Schmidt, “The dynamics of M&A Strategy. Mastering the Outbound M&A Wave of Chinese Banks”, 2010 -A. Reagan, J. Song, “An Industry in transition: third party Logistics In the Information Age”, Institute of Transportation Studies and Department of Civil & Environmental Engineering, University of California, 2000 Web sites: Article: “Eye for Transport”(3PL news portal), “Geologistics, Schenker and BAX Global settle US Antitrust case with US$24m”(October, 2010) retrieved from: http://www.eyefortransport.com/content/geologistics-schenker-and-bax-global-settle-us-antitrustcase- us24m Article: “Deutsche Bahn at a glance”(2009) retrieved from: http://www.bahn.de/i/view/DEU/en/about/overview/company_profile.shtml Article: “2010 top 10 international logistics companies list”(2010) retrieved from: http://www.laowee.com/index.php/2010/09/2010-top-ten-international-logistics-companies-list/ Article: “Schenker, Inc. and BAX Global Complete Integration”(March, 2009) retrieved from: http://www.allbusiness.com/company-activities-management/company-structuresownership/ 11799993-1.html Article: Logistics Asia Magazine, “Schenker, BAX Global merge in Malaysia”, Logistics Insight Asia(January, 2008) retrieved from: http://www.logasiamag.com/article-267-schenkerbaxglobalmergeinmalaysia-LogisticsAsia.html Article: STEPHANIE STOUGHTON, “Deutsche Bahn to Buy BAX Global Division”(November, 2005),The Associated Press, retrieved from: http://www.washingtonpost.com/wpdyn/ content/article/2005/11/16/AR2005111601497.html Article: Bloomberg- Business and Financial News, “Deutsche Bahn to Buy Brink's BAX for $1.1 Billion (Update3)”,(November, 2005)retreived from: http://www.bloomberg.com/apps/news? pid=newsarchive&sid=aGTrp5hIMEgU&refer=top_world_news References 15

31. 16 Discussion Questions Imagine you were a manager at BAX Global. How would you feel about the acquisition? Ignore the proposed theoretical frameworks for the acquisition. In your own opinion, what were the reasons for it? Do you think that the acquisition was a good decision?

32. THANK YOU FOR THE ATTENTION AND THE FRUITFUL DISCUSSION!  17