Pelikan To Sell Its German Logistics Center

Logistics center owned by Pelikan in Falkensee, Germany

Pelikan International Corporation Berhad (PICB) has seen a significant bump in its share price on the Malaysian stock market over the past several days, noting an 11% increase this past Friday alone. Why is Pelikan’s stock heating up right now? The market activity is tied directly to PICB’s subsidiary, Pelikan Group GmbH, having entered into a conditional sale and purchase agreement on July 7th to sell its logistics center located at Straße der Einheit, Falkensee, Germany. The logistics center is an expansive 135,000 square meter (~1,453,128 square foot) space that includes areas for warehouse storage, offices, and production. The buyers are wholly owned subsidiaries of HWE Investor GP S.à.r.l, part of the Hillwood Group which is based out of Dallas, Texas. The US based Hillwood Group also has operations in the United Kingdom, Germany, and Poland. They are a developer of residential, commercial, and industrial real estate. The property being disposed of came to Pelikan in April 2010 as part of their acquisition of Herlitz AG. At that time, the company acquired a 66% stake in the stationary brand for approximately $60 million (€45 million/RM221.85 million). The building’s current occupants are eCom Logistik GmbH, a logistics services company formed in 2003 as a subsidiary of Herlitz AG. Currently boasting approximately 166 employees it became the wholly owned subsidiary of Pelikan AG in 2015. Fret not if you were worried that Pelikan might be selling off its fine writing division. The property will sell for approximately $96 million (€81 million/RM399.33 million) which is expected to net the company a one-off gain of $44 million (€37 million/RM184.83) based on PICB’s audited consolidated financial statements for fiscal year 2020. Read on to discover all of the details and learn just how Pelikan plans to use the revenue this sale is expected to generate.

Herlitz brand logo

A look at the financial history of PICB shows that the company reported losses from 2011 through 2015. After working to streamline assets, the company finally returned to the black in 2016. Despite again becoming profitable, Pelikan’s share price has been declining over the last several years and asset monetization has remained a consideration. So why now? Reports out of Malaysia indicate that asset monetization has picked up speed over the past year following the arrival of new shareholders in Pelikan since 2019. Most notable are Urusharta Jamaah Sdn Bhd who now holds a 26% stake and Ikhlas Capital Singapore Pte Ltd. which has a 10% stake in the company. Of course, Pelikan’s current president and CEO, Loo Hooi Keat, is reported to have a 10% direct and 6% indirect stake in the company that he heads. Records indicate that Pelikan has not paid a dividend to its shareholders in some time, not since 2012 to be exact. A release from PICB had this to say about the sale;

“The proposed disposal will enable the group to unlock capital resources from being tied up as long term assets and realize the value of the property at a fair market value whilst strengthening its financial position… The disposal consideration will be mainly used for the Group’s working capital requirements, rewarding the shareholders though special cash distribution, further reorganizing its operations internally and for partial repayment of its bank borrowings, thereby enhancing overall profitability and lowering its financing cost.”

Pelikan International Corporation Berhad

One issue that has plagued the company’s financials is its burden of debt. PICB reportedly has a total debt of $95 million (€80 million/RM400 million) which is higher than its current market capitalization of $57 million (€48 million/RM240 million). Malaysian reporting tells us that of the $96 million in proceeds the sale is expected to generate, Pelikan will use $48 million (€40 million/RM200 million) to repay bank loans, $39 million (€33 million/RM161.93 million) for working capital as well as to pay a special cash dividend to shareholders, and $6 million (€5 million/RM 24.6 million) for internal reorganization. Pelikan also reports that it is examining the consolidation and redistribution of other existing plants and production facilities counted amongst its assets.

Pelikan International Corporation Berhad financial highlights from 2012 to 2021
A graph depicting Pelikan’s annual financial highlights from 2012 through the first quarter to 2021 (click to enlarge)

In addition to the sale terms as outlined above, Pelikan Group GmbH entered into a conditional lease agreement with one of the buyers, HE4 Falkensee 2, to remain a tenant of the property for a five year period for an annual gross lease fee of $4.9 million (€4.15 million/RM20.46 million) per year, payable on a monthly basis. The term would commence upon completion of the proposal. That deal will give the company ongoing access to seven stories housing 109,036 square meters of office, production, and storage space. The site includes a fully automatic high-bay warehouse with 49,000 pallet spaces, a fully automatic box store with 72,000 containers, 59 loading ramps for incoming and outgoing goods, a tilting tray sorter, an automatic loading system, and 2.8 miles of conveyor technology with 36 elevator systems to bring it all together. The proposed deal allows Pelikan to unlock capital resources while also ensuring that operations at the existing location are not disrupted in the near term. Of course, all of the above remains dependent upon the approval of PICB’s shareholders which will be sought at an extraordinary general meeting to be convened at some point in the near future. The deal is anticipated to be completed by the fourth quarter of 2021 provided everything goes as anticipated.

It is unclear at this time just how much of the proceeds may find their way to Pelikan’s fine writing division, specifically the manufacturing plant at Peine-Vöhrum but, given the recent issues there, I would hope that this would be a top priority for the business. I would fully expect that to be the case prior to any distribution of dividends to the company’s shareholders. Also yet to be seen is just how the fine writing division may be affected, if at all, by those future plans for consolidation and reorganization. Stay tuned to this blog, as always, for the latest news out of Germany regarding any future developments.

*All dollar ($) and euro (€) values quoted above are estimates provided in order to establish a commonly understood frame of reference for the reader. The values quoted in Malaysian Ringgit (RM) are the most accurate reported.


References

21 responses

  1. Not sure what this all means to the production of Pelikan pens. That point was very sketchy in the write-up. Never explained what the “Pelikan Logistics Center” was. Waste of time reading this article I must say.

    Like

    • Forgive me for saying so but you’re comment is a bit harsh Francis. Sorry to have not been clearer with the point. Allow me to simplify. The factory where the fine writing instruments are made is struggling, largely due to financial issues. Pelikan is an asset rich company. They are selling one of their German assets, not directly related to their pens, in order to generate revenue. This may have the benefit of freeing up capital to fix the issues currently being experienced at the plant that produces our beloved fountain pens. Hope that helps clarify my intentions in publishing this piece. Perhaps I’ll stick with pens going forward and less with corporate affairs which are admittedly not my strong suit.

      Like

      • Yes, the comment was harsh. Unnecessarily so.

        My career is as an investment professional and I am a CFA. I do financial analysis of companies and their operating activities everyday. The write up you did was completely understandable to me and very interesting. That the critic did not understand what this means for Pelikan pens probably says more about their lack of understanding that any fault of the article.

        The picture you describe for PICB is unfortunately all too familiar. If workers don’t see a Euro dime of the disposal proceeds I imagine that the unions will take a very militant approach: next time the millionaire Malaysian owners come round with a begging bowl to ask employees for a further cut in benefits they are likely to get a Teutonic “no”.

        Like

        • Thank you for your supportive words. I thought the post had value for just the reasons you stated. To me this could have significant implications for the fine writing instruments plant at Peine-Vöhrum. They are either going to see some benefit from this sale or they are not. If they don’t, the unions aren’t likely to take that kindly. I guess the ball is in Pelikan’s court.

          Like

  2. Your article is an interesting insight into the corporate ‘movements’ within Pelikan and, in particular, the Malaysian owners and their plans. Joshua, please keep up the good work!

    Like

    • I’m glad you enjoyed it. I’d much rather be writing about pens though than these large corporate moves. Still the news is relevant to our shared interest in fine writing instruments.

      Like

    • It’s a very advanced building that is quite expansive. The market was right for the sale and Pelikan makes out well by it. The big question is how much of the proceeds are going to go to their fine writing instruments division.

      Like

  3. Thank you for writing a very interesting and well researched article, which I read in conjunction with your last one. What worries me is that the new Pelikan shareholders you refer to may want to make a quick return on their investment and this may be to the detriment of the Hannover factory? I note that Pelikan already makes some of their cheaper pens outside Germany. I own an ILO that was made elsewhere. Thanks once again and I’ll look forward to an update.

    Like

    • That is indeed a worry and a risk. I just hope that decisions will be made with the workers and the long term health of the company in mind. There is a lot of heritage here to preserve.

      Like

  4. Very nice article, as always, Joshua.
    I can only imagine the time it took to research all this… Thanks for putting the effort and sharing this with us.

    Let us hope that some of these funds finds its way to the fine writing division, so that we keep seeing new releases from our cherished Pelikan.

    Like

    • That is my hope too. I don’t find that this news gets widely reported and like to bring it to a larger audience that might have some interest. The research is rather enjoyable to me. Thanks for reading.

      Like

  5. Thanks for all of your research on this, Josh. I’m not a financial wiz of any sort but do understand business and found your review completely understandable and well-written. Sadly, this kind of transaction is all to common in today’s world of acquisitions and private equity investment. I hope that Pelikan returns to a level of profitability that eliminates everyone’s (customer’s and investor’s) concerns. (PS… Frankly I’ve often wondered how you manage a full time job and still have time to do all of this but I really appreciate your work. Most of what I learned about my beloved Pelikans came from you.)

    Liked by 1 person

    • I’m glad that you found it understandable. This stuff is not my forte as it were and I feel a bit out of my element addressing it but it seems like important Pelikan related news to me. I think Pelikan can turn it around but there are some warning signs here that I hope the company heeds. I have more than a full time job but I literally eek out a few minutes here and a few minutes there. It helps if you’re not too attached to sleep. My job is so stressful I can’t stand it some days. The blog is a nice release, something that I can get lost in. When you have something like that, you find the time.

      Like

  6. Thanks for both articles, Joshua. I look forward to reading how the situation develops. When a company streamlines it’s balance sheet by selling assets to generate cash, one can see from what remains what the company finds important and desires to focus on. It looks like they are trying to pay down some debt, give something to the shareholders (the company seems to be somewhat tightly held), and maybe simplify a bit. Sell what they can’t use productively, and strengthen the rest. At lest that‘s how I read it on the surface. Not a bad move that seems to add stability, but how it all works out of course remains to be seen.

    These reports give great situational awareness to the things that are going on behind the scenes that might impact the fine writing Instruments operations.

    I would think Pelikan fans would be very interested.

    Like

    • Yes, that seems exactly what they are doing. Stock is again up today on the announcement of shareholder dividends.

      Issued share base = 608.13 million
      Dividend allocation from the sale = RM120.64 million ($28,706,722)
      Dividend per share = 20 sen which is 1/5th a RM or $0.048/share

      That means there is RM200 million ($47,590,720) for loan repayment, RM 41.29 million ($9,825,104) for working capital, and RM24.6 million ($5,853,658) for internal reorganization. It is the internal reorganization that has me most worried as the company has stated; “The group’s internal reorganization exercise may include mergers and the relocation of its existing plant/manufacturing facilities which are located in several countries around the world to improve its overall operational efficiency and productivity, as well as its long-term profitability as part of the group’s measures taken to counter the adverse impact caused by the coronavirus pandemic.”

      I only hope they are referring to their other divisions across the globe and are not planning to upend the tradition of Pelikan pen manufacturing in Germany. I don’t think they will do so but you never know. Production cost in Germany are high. To me, that would be a devastating move for their fine writing instruments division.

      Liked by 1 person

  7. Great article and for the provided analysis of Pelikan’s corporate restructure. I couldn’t understand the harsh comment from one of the commenters, but the restructure and asset sales would hopefully see that the pen factory workers are paid their entitlements – but I have this niggly feeling that it won’t. I am eagerly awaiting this year’s Raden release and let us hope that the Peine-Voehrum plant would see at least a few more years of production.

    Like

    • Everyone is entitled to their opinion and I don’t begrudge them that. Not every article will resonate with every reader. I know that feeling but am hopeful the company will do the right thing. If Raden is your thing, I hear September may be a good month for you. We’ll have to wait and see.

      Like

  8. In this backdrop, the last minute changes to hardware on Petrol-Marlbled now make sense. The fact they were trying to pass it off as nothing more than an “oversight” seemed laughable then and even more so now. It was a sad harbinger of things to come.

    Aggressive tweaks to promotional pics that bore little resemblance to the real pens’ colors has been escalating in recent years at Pelikan and this year Pelikan changed hardware in the last minute on Petrol-Marbled. I doubt such practices would have happened in the prior decades.

    Sadly, most of these shenanigans end up as death spirals with the corporation doubling down on dumb practices till they go out of business.

    The pen world is littered with former “great” companies that just go with a whimper: Delta, Omas, etc.

    I am a Pelikan fan and own several of their Special and Limited Editions, so this is very sad to see.

    Not calling them out when they pull a fast one, or equivocating in commentaries is the best way to see them crash and burn. Good luck to them.

    Like

    • I agree that the “oversight” story simply doesn’t carry any water at this juncture. I don’t think that we are in a death spiral per se but there are signs of trouble and things could certainly progress. To me, the death sprial would be should Pelikan International decide to move production outside of Germany. No talk of that that I’m aware of and I would hope the company would have the good sense to resist the urge to do so. I think the cheaper production cost would not be worth what would be lost in cachet.

      Like

    • Another thing I noticed is that Pelikan hasn’t been updating their PelikanPassion Instagram account for over 2 months now. That account used to be pretty responsive and informative for the new releases. I didn’t find there is any post regarding the new M605 Green White.

      I don’t know if this is just another concern for Pelikan fine writing instruments.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: