LOGISTICS company Exel has agreed to be taken over by DHL owner Deutsche Post in a deal worth £3.7bn.

The proposed takeover, which was backed by the directors of both companies over the weekend, is expected to create the world's largest logistics business, with a combined workforce of about 500,000 people.

Exel, based in Bracknell, Berkshire, has more than 110,000 staff worldwide and is best-known for handling warehouse and distribution operations for a number of blue-chip retailers.

It employs about 100 people on Teesside, where it serves the petrochemical industry.

A spokeswoman for the company said she could not say what impact the takeover would have on the workforce.

Deutsche Post said the deal made sense because it combined Exel's strong position in the UK and US with its activities in Europe.

The company, which acquired parcels group DHL in 2002, has also been trying to reduce its dependence on its mail delivery operation in Germany, where the company will lose its monopoly in two years.

The deal could yet be undermined by a rival approach, with UPS and Federal Express being seen as the most likely counter-bidders.

Exel has long been seen as a takeover target and announced earlier this month that it had attracted a takeover approach from Deutsche Post. Yesterday's offer is a 48 per cent premium on Exel's share price before the start of takeover speculation.

Exel's chief executive, John Allan, will lead the integration process and run the enlarged logistics part of the operation from Exel's Bracknell base.

The consumer and retail sectors account for 60 per cent of Exel's European contract logistics business, including work for retailers such as Boots, Morrisons and Sainsbury's. It also has a freight management operation within a business that generated total revenues of £7.2bn in the year to June 30.

During the past 15 years, Deutsche Post has transformed its business from a government-managed agency into a multi-national group. About 40 per cent of its revenues come from domestic and international courier, parcel and express delivery services, including through DHL.

It expects to generate cost savings of about £149.1m from the tie-up by 2008, although it did not provide further details.

The deal for Exel is the largest involving a FTSE 100 Index company since the takeover of Allied Domecq by Pernod Ricard for £7.4bn in the summer.

Other blue-chip companies in the sights of overseas companies include Scottish Power, which has been approached by the German owner of Powergen and plasterboard company BPB, which is in the sights of Jewson owner Saint-Gobain.

Deutsche Post, which is one of the main competitors to Royal Mail in the UK, has 380,000 employees worldwide and generated revenues of £29.4bn last year.