FedEx acquisition of TNT receives unconditional approval from European Commission

Earlier today, FedEx and TNT NV announced that the proposed $4.8 billion acquisition of TNT by FedEx received the news they were hoping to hear from the European Commission (EC), with the companies saying they obtained the unconditional approval of the EC and the EC concluding this deal does not raise any competition concerns.

“We are extremely pleased to receive the European Commission’s unconditional approval,” said David Binks, Regional President Europe, FedEx Express, in a statement. “We believe the combination of TNT Express and FedEx will provide significant value to the employees, customers and shareholders of both companies.”

FedEx and TNT Express officials said they will continue to work constructively with the regulatory authorities to obtain clearance of the transaction in the remaining jurisdictions, including Brazil and China. The companies added they are making timely progress and continue to anticipate that the Offer will close in the first half of 2016.

Last November, the United States Federal Trade Commission (FTC) signed off on the deal in the form of getting U.S. antitrust permission to merge, and a month before that the companies stated they have not received a Statement of Objections regarding the proposed deal from the European Commission (EC). It added that the internal deadline of the EC for issuing a Statement of Objections would have expired October 23, “but Fedex and TNT have been informed by the [EC] that no Statement of Objections will be issued.”

This is not the first time TNT has been featured in a deal with the prominent global parcel payer. In 2012, it was close to being acquired by FedEx’ chief rival, UPS for $6.8 billion, but the deal was squashed, following a formal decision from the European Commission, the executive body of the European Union, which prohibited the acquisition. Many of the EC’s concerns over the deal were due to the competitive parcel landscape in Europe.

In November, FedEx officials said the meshing of FedEx and TNT Express presents a highly pro-competitive proposition for the provision of small package delivery services within and outside Europe.

They added that the networks of TNT Express and FedEx are largely complementary, given that FedEx’s strength is providing U.S. domestic and extra-EEA international services, while TNT Express’ focus is on providing intra-European services while also noting that the Combination would allow the parties to sell a more competitive e-commerce offering in the market, which should benefit consumers and SMEs in Europe and beyond.

FedEx would pay TNT $200 million in the form of a breakup fee should the deal not come to fruition. TNT and FedEx said that the European regional headquarters of the combined companies will be in Amsterdam/Hoofddorp, and that the TNT Express hub in Liege will be maintained as a significant operation of the group.

TNT has grown into a highly respected $6.680 billion euro company with diverse revenue streams from around the world with operations in more than 200 countries in Europe, the Middle East, Asia Pacific and Latin America. The company has a substantial group of assets, including aircraft, vehicles, hubs, and depots, which cumulatively account for about 1 million deliveries per day handled by its nearly 80,000 employees. In 2014, it kicked off new productivity and efficiency plans, which included a restructuring of its management team and investments into its people, processes, IT systems and institutional competencies, whilst facing stiff competition and adverse trading conditions, particularly in Western Europe.

Rob Martinez, president & CEO, Shipware LLC, a San Diego-based parcel consultancy, said this deal is good for TNT, whose financial volatility on its own is in question.

“It is good for FedEx, and it’s good for EU shippers,” he said. “It actually makes the market more competitive in our view.”

Martinez told LM that the acquisition of TNT Express by FedEx makes strategic sense for FedEx to immediately grow its European capabilities, distribution footprint and market share.

“While FedEx already operates a sizeable air fleet in Europe, TNT now gives FedEx an expansive Ground network throughout the continent, especially within France and the UK where FedEx does not have a strong road network,” he said. “Conversely, it’s a good move for TNT to expand global capabilities to its customer base, especially in North America. With this acquisition, FedEx will immediately become the second largest operator with a combined 17% of the European market share. DHL has an estimated 19% market share, UPS about 16%. Unlike the failed acquisition of TNT by UPS in 2012, EU regulators are less likely to object since FedEx has less presence in Europe, less than 5 percent of the market share.”

Transport Intelligence analyst Thomas Cullen wrote in a research note that this FedEx acquisition represents a big stride forward in deepening the globalization of the FedEx business.

“FedEx has strong presence in inter-continental traffic but its profile in markets such as China or continental Europe bares little relationship to the depth of business it has in the US, characterized as it is by a strong ‘last mile’ operation and a leading road freight network to complement its core air-Express franchise,” Cullen wrote. “Now in possession of TNT, FedEx might conceivably have a bridgehead from which to aspire to some of this in Europe in what might be seen as a sort of ‘FedEx Ground Europe’ or ‘FedEx Freight Europe’. But realizing it will be difficult. Europe is not one coherent market. Even neighboring markets such as Britain and France are very different, with different types of customers and providers. Traffic flows are often fragmented and follow different patterns than in the US. Certainly the UK and German e-retailing markets are very advanced and growing quickly but with that comes a ferocious level of competition. Another big problem is that TNT Express is orientated towards the ‘business-to-business’ market not the consumer ‘last mile’ segment.”

Jerry Hempstead, president of Hemsptead Consulting, said that if done right, this could be awesome for FedEx.

“The two companies have very disparate cultures and it may be culturally hard for FedEx to say to TNT ‘you guys are the gorilla in Europe, you take our existing FedEx business and put it on your network,’” he explained. “Egos and hubris come into play and invariably it ends up in valuable employees exiting and with them go their book of business. After all what FedEx is buying, at the end of the day, is TNTs customer list. The secret to success is holding onto that book of business while rationalizing the network and optimizing routes. History will be the judge if this was a good deal. Experience says that in taking another major competitor out of the game, rates for shippers will go up. At least Outside the USA there will be three in the game (but only two of those have a domestic US Solution ) and the U.S. is the largest parcel market in the world.”