Report indicates FedEx is not considering acquiring TNT’s Express unit

Like its top competitor UPS said at the end of 2010, FedEx recently stated that it is not considering acquiring the express business of Netherlands-based TNT NV, a provider of mail and courier services and the fourth largest global parcel operator, according to a Dow Jones report.

The report stated that FedEx considers the TNT business to be “too expensive,” adding that FedEx does not need to do a deal in Europe although company CFO Alan Graf said FedEx looks at possibilities for acquisitions frequently.

While Graf cited a high price tag for the TNT Express business, Dow Jones noted that FedEx CEO Fred Smith said in September that FedEx would possibly “get under the hood” and take a look at TNT if it were decisively for sale, although he cautioned that FedEx does not have a strategic imperative to make a deal in Europe. And Graf added that the company has its own “organic plans for growth in certain key European countries, which does not include making any acquisitions there.

In December, TNT announced its plans to it plans to “demerge” operations by separating its Express and Mail operations into two independent companies, effective this past January. Company officials said that the main reasons for an internal separation were the increasingly divergent strategic profiles of the two units and the limited existing synergies between them.

As a result of this initiative, TNT NV will demerge Express and only focus on Mail activities, and will retain a 29.9 percent financial stake to cover separation agreements, which will be returned to shareholders as soon as possible, according to the company. And the demerger will be voted on by TNT shareholders next month.

“Mail is faced with a continuously declining mail market in the Netherlands and has to focus on sustaining solid cash flows and operational efficiency,” said the TNT officials in Decmeber. “Express’ priorities are to grow its existing strong European networks, to continue to grow the intercontinental business from and to Europe into adjacent markets and to secure contributions from its existing strong positions in China, South America, and India.”

As for UPS, media reports out of Europe in December indicated it will not be a potential buyer of the unit.

UPS Chief Financial Officer Kurt Kuehn told a German newspaper, the Boersen-Zeitung, that UPS does not intend to make any large acquisitions in the future. But he did say that the company may be more inclined to focus on small and medium-sized acquisitions in Europe rather than buying TNT’s Express unit.

Using DPWN DHL as an example, Kuehn explained that expanding too quickly into a region—as DPWN DHL did when DHL Express acquired Airborne Express in 2003 to establish a U.S. domestic presence—can be dangerous. DHL Express eventually pulled out of domestic operations in the U.S., due to severe financial losses and facing myriad challenges keeping up with the more established and larger UPS and FedEx.

“There are two strategies to climb the mountain; DHL selected the fast way, but when it reached the summit, it was exhausted and vulnerable,” Kuehn told Boersen-Zeitung.

A December Reuters report stated that Kuehn said that any potential acquisition made by UPS would potentially be in Central Europe, Eastern Europe, or Turkey and would not necessarily be in the Express sector, and instead could be in the supply chain services arena.

A research note by David Ross, Stifel Nicolaus analyst, explained that UPS has denied interest in acquiring TNT’s Express business recently, adding that UPS already has a very strong European footprint—with roughly 50 percent of its International Package business Europe-related—and he noted that because of that fact it would make even less strategic sense for UPS to acquire TNT.

“I would say it is a mistake for either UPS or FedEx to buy [TNT],” said Jerry Hempstead, principal of Hempstead Consulting, in a recent interview. “It would just be the same mistake DHL made when they acquired Airborne. But UPS and FedEx are in this express and ground space already, and I can just see them not being able to resist the urge to get their brand on everything and forget why they are in business in the first place. And I can’t see the European Union letting DPWN-DHL buy TNT, because it then creates more of a monopoly in Europe.”

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