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Maersk Acquires Li & Fung’s Logistics Arm for $3.6 Billion

Danish logistics and shipping giant A.P. Moller-Maersk is acquiring Li & Fung Limited’s logistics business, LF Logistics Holdings Limited, and its various entities, in a deal worth $3.6 billion. The pact is part of a strategic partnership between Maersk and the Hong Kong-based sourcing firm to further develop a comprehensive range of end-to-end global supply chain services.

By acquiring Hong Kong-based LF Logistics and its in-country logistics (ICL) unit, Maersk gains a physical foothold in Asia, namely 223 distribution centers across 14 Asia-Pacific markets, as well as more than 250 new customers globally. After the deal, Maersk would operate 549 facilities globally, spread across 9.5 million square meters.

LF Logistics generated roughly $1.3 billion in revenue in 2020, following average growth of 6.6 percent over the past three years. Maersk said the business posted adjusted EBITDA of about $235 million in 2020.

The logistics services provider offers both contract logistics services across Asia and freight management services globally. In divesting LF Logistics, Li & Fung can further simplify its business to focus on its core trading and supply chain digitization capabilities, which have seen a “strong rebound back to pre-Covid levels,” according to Spencer Fung, group executive chairman of Li & Fung.

Subject to regulatory approvals, the transaction is expected to close in 2022. Until the closing, LF Logistics and Maersk will remain two separate independent companies. As part of the partnership, Li & Fung Limited is expected to retain LF Logistics’ global freight management (GFM) business.

And while ships and vessels continue to linger at sea, Maersk sees a great opportunity to further capitalize on land-based logistics, which has become more profitable than its traditional sea-container business. Maersk will boost annual revenue in its logistics and services business by approximately $1 billion with the ICL business in tow.

“We are excited, and we look forward to strengthening our global logistics business and welcoming 10,000 new logistics experts from a customer-centric culture with well-executed operations,” said Vincent Clerc, CEO of ocean and logistics at Maersk, in a statement. “With the intended acquisition of LF Logistics, we will bring in an extensive warehousing network covering the fast-growing Asia-Pacific markets; all underpinned by a best-in-class operational and technology platform which we can scale globally across our network. We are impressed by the way LF Logistics has built a track record of executing a superior omnichannel strategy for customers, which is a strength we can use to build and operate fulfillment to customers across our network.”

The collaboration follows the recent formation of LFX, focusing on digital ventures, investments and supply chain finance with GLP, its Singapore-based partner. The sourcing firm sought to further its supply chain digitization with the efforts, and soon after released a “3D-as-a-service” technology called UNIFi3D to help fashion brands transition to creating and selling products digitally.

“With Covid causing major supply chain disruptions, the importance of a diverse global supply chain network is more pronounced than ever, and Li & Fung is well positioned to serve our customers through our network of 50 export markets,” said Fung in a statement. “With Li & Fung’s upstream digital and sourcing expertise and Maersk’s downstream logistics capabilities, we will begin to offer our respective customers the opportunity to take advantage of this unique end-to-end value chain proposition anchored upon operations excellence, technology and sustainability.”

Maersk has been emptying dipping into its war chest recently as supply chain disruptions have acted up, purchasing two Boeing 777 jets as well as three Boeing 767-300 cargo planes, and also further expanding its global air network by acquiring air freight forwarder Senator International for $644 million. The firm has been on an acquisition spree since August, buying three e-commerce logistics firms: U.S.-based Visible Supply Chain Management, Netherlands-based B2C Europe Holding B.V. and Portugal’s fashion-oriented warehousing startup Huub.

Maersk has a deep resource of cash amid 2021’s accelerated shipping volumes and freight rates, with free cash flow reaching $5.3 billion at the end of the third quarter. Along with many of its ocean shipping peers, the company is looking to have more control of the shipping process from end to end. In another recent example, CMA CMG, which has $5.8 billion in free cash flow, is taking matters into its own hands by acquiring Port of Los Angeles container terminal operator Fenix Marine Services (FMS) for $2.3 billion. The French shipping firm is planning to invest in extending the terminal’s 292-acre container yard and rail capacity, and build a new berth and further digitizing the facility.

LF Logistics is jointly owned with Singapore sovereign wealth fund Temasek, with Li & Fung currently holding 78.3 percent of ownership and Temasek holding 21.7 percent of the company. Li & Fung and Temasek stand to receive up to $160 million more from Maersk depending on LF’s financial performance over the coming years.

Li & Fung originally intended to hold an initial public offering for LF Logistics, but that plan was postponed amid Temasek’s investment and then a successful drive last year by Li & Fung’s own shareholders to take the company private in a $923 million buyout.

Joseph Phi, group CEO of Li & Fung and CEO of LF Logistics, will continue as the group CEO of Li & Fung after the transaction closes and will no longer serve as the CEO of LF Logistics.

Commenting on the intended transaction, Phi said, “We recognize that for LF Logistics to be a global leader in the industry, achieving scale is of paramount importance. Maersk provides the ideal fit for our people and our customers. It has a substantial presence around the world and will utilize LF Logistics’ talent base and operational platform to build out its logistics and fulfillment offering globally. This is testament to the strength of our team, our unique operations-centric culture, and superb growth potential.”

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