A TDG/Salvesen merger would mean stronger UK presence but little growth scope in mainland Europe

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UK-based logistics company TDG has confirmed it has held preliminary merger discussions with domestic rival Christian Salvesen. This move is part of an ongoing consolidation drive that shifted into a higher gear when Exel acquired Tibbett & Britten in June. Indeed, TDG's move may yet prompt rival bids. According to independent market analyst Datamonitor, this also sends signals that the UK logistics sector could well be set for further consolidation. However, the combined company would still remain largely UK-focused which in Datamonitor's view could be a drawback.

"Although there is a strong case for TDG and Salvesen to merge, the combined company would still be mainly UK-focused, with relatively limited basis for growth in mainland Europe," says Datamonitor logistics analyst, Tom Mills. "This could prove a drawback in a sector where geographical coverage is needed to serve multinational clients and regional supply chains."

Salvesen and TDG are respectively the third and fourth largest logistics companies in the UK. Although a merger would merely create a larger third-placed player behind Exel and Wincanton, a merged company would benefit from increased scale and cost savings.

The Salvesen family controls 30% of Salvesen's stock and has fended off several takeover bids. However, they are thought to be unlikely to oppose a merger. The company's other shareholders would doubtless be keen for a deal after repeated profit warnings that have weakened Salvesen's market value. Most observers agree the deal would make sense in a market where size is an increasingly important factor in competing for the most valuable customers.

TDG's move may encourage other European players to consider a rival offer for Salvesen. Deutsche Post World Net, for instance, has set the pace for consolidation in the European logistics sector with a series of major acquisitions. But it still lacks a significant presence in the large UK market. It is thought, however, that the Salvesen family may be more receptive to a merger than a takeover.

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