It’s a deadly combination for a com- with Vontobel Group, a Luxembourginvest-pany’s bottom line: a souring econo- ment bank. “Given the deteriorating mar-my coupled with a bribery and cor- ket environment and the prolonged negative ruption probe. impact from the Nigeria exit, we would say That’s what Swiss logistics group stay away from the shares.”
Panalpina faces as it tries to get past The company itself is cutting back its damaging bribery allegations in Nigeria expectations for the year. “Factors such and the 13-month-and-counting probe as the global finance crisis and the ris-of its dealings in that country by the U.S. ing prices of raw materials have affected Department of Justice. investment and consumer behavior in
The magnitude of its Nigeria problem many countries, and therefore growth in was underscored late last month when the air and ocean freight has also slowed,” said company disclosed that its net profit in the Monika Ribar, Panalpina’s chief executive. first half of the year plunged 29 percent to Both the North America region and
report on the Panalpina situation. “Even those businesses that maintain strict internal controls and work hard to comply with U.S. anti-bribery laws have difficulty with FCPA-compliance in this region.
“Corruption is so prevalent in Nigeria that it is nearly impossible to conduct business in the country without being asked to pay a bribe,” the report said.
Last September, the probe was broadened, and Panalpina’s subsidiary in Nigeria was asked to produce documents and other information related to its business and services to certain customers in Nigeria, Kazakhstan and Saudi Arabia. The company launched its own internal investigation into the situation at that time.
$73.2 million from a year earlier despite an above-market increase in forwarding revenue of nearly 8 percent to $4.1 billion.
Most of that profit decline was attributable to the Nigeria mess. And even though the company said it will exit Nigeria by the end of the year, the fallout could have a long shelf life.
There’s no end in sight to the Justice Department probe, which appears to be widening, and at the same time the global trade environment and economy is worsening. Through June of this year, Panalpina has spent $15.5 million on legal and consulting fees in connection with the DOJ probe.
Even in a company with billions in revenue, such a significant profit drop is bound to create a serious rethinking of a company’s share price and outlook for the remainder of the year.
“At first glance, we are expecting to reduce our full-year 2008 estimates by some 10 to 15 percent,” said Michael Foeth, an analyst
regions in Europe, Africa, Middle East and Commonwealth of Independent States, a coalition of former Soviet republics, “suffered more than others due to Nigeria-related issues and negative currency effects,” Panalpina said in announcing its results.
On July 2, 2007, 11 oil and oil-service firms received a letter from the Justice Department’s criminal fraud unit asking them to describe their relationship with Panalpina. The letter, which has not been publicly released, reportedly cited concerns about alleged payments to Nigerian Customs agents made by Panalpina that may have violated the U.S. Foreign Corrupt Practices Act. The Securities and Exchange Commission launched a related civil investigation.
“Nigeria has long been known for its corrupt practices,” attorneys Joseph P. Covington and Jessica Tillipman with the Washington law firm Jenner & Block said in a recent
The Panalpina investigation likely will continue for some time, and its scope could widen to include U.S. companies with international operations that have used Panalpina’s services.
Earlier this year, Royal Dutch Shell disclosed that its U.S. subsidiary, Shell Oil, was contacted by the Justice Department in connection with the Panalpina probe. Shell began an internal investigation and warned shareholders that while investigations continue, it “may face fines and additional costs.”
Transocean, the Houston offshore-drilling contractor, also has launched an internal investigation into its dealings with Panalpina in Nigeria.
Panalpina’s Ribar said a withdrawal from Nigeria “is in the company’s best interest.” The company will continue to offer transportation services up to arrival ports and airports there, but will terminate all local and domestic services. She said Nigerian investors have shown interest in taking over Panalpina’s local service portfolio, and “intend to acquire some of Panalpina’s assets and resources for their own company, and they also plan to recruit employees from the current Panalpina Nigeria staff.”
The new company “will operate completely independently from Panalpina, and the Panalpina Group will not have any equity stake in this new company,” the company said in a statement.
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