TNT rejects $6.4 billion bid from UPS for its Express unit
February 17, 2012
Reports out of Europe today are stating that Netherlands-based TNT NV, a provider of mail and courier services and the fourth largest global parcel operator, rejected an offer by UPS for TNT’s express business.
Bloomberg reported that the unsolicited bid was for $6.43 billion ($4.89 billion euros), which is 42 percent above TNT’s stock price. The report said that this offer was turned down by TNT’s board, citing a company statement, which added that the companies still remain in discussions.
UPS officials confirmed in a statement that in February 11, following discussions with TNT, it made a revised, increased and comprehensive proposal to acquire the entire issued share capital of TNT for EUR9 per share in cash.
Like TNT, UPS confirmed that the discussions between the companies remain ongoing, although there is currently no certainty that any agreement will reached. UPS added that further details will be provided when appropriate.
These developments represent a change of heart for UPS to a degree. In December 2010, shortly after TNT first announced its plans to sell off its Express unit, it indicated it would not be a potential buyer of the unit.
UPS Chief Financial Officer Kurt Kuehn told a German newspaper, the Boersen-Zeitung, at that time that the UPS did 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.
In December 2010, TNT announced its plans to it plans to “demerge” operations by separating its Express and Mail operations into two independent companies, effective January 2011. 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.
“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 TNT officials in December 2010. “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.”
And in May 2011, TNT NV’s shareholders approved the spin-off of its Express unit. As a result of this initiative, TNT NV said it would 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.
When this process was completed, it increased speculation that TNT Express would be a prime acquisition target for either UPS or FedEx. German-based Deutsche Post World Net, and parent company of DHL, is not viewed as a buyer because it would create a monopoly status in Europe, which would be unlikely to gain approval from the European Union and be protested by FedEx and UPS.
“TNT has gone to great lengths over the last few years to package itself for a possible sale and they have been quite open that ‘their phone lines are open’ to anyone who wants to call,” said Jerry Hempstead, president of Hempstead Consulting. “I think the key here is not that a rumored deal has been rejected, but that talks are still going on.”
Hempstead explained that first offers are generally rejected, with the hope of a higher price for shareholders, but he explained that out of the box, UPS is offering a nice premium.
“My [gut] tells me that the EU would have to approve a Dutch firm being bought by a USA transport and that such approval process would involve a protest from DHL/DPWN. One has to understand that DHL is the largest player in Europe by far and TNT is second. A TNT/UPS deal is a significant threat to DHL.
What’s more, the parcel consultant noted that there is irony in the fact that UPS fought the acquisition of Airborne by DHL in 2003, which resulted in a massive financial loss for DHL because the integration of the cultures was a tad flawed. UPS, he said, may find the same challenge in Europe trying to manage TNT.
“I don’t think this story is dead yet, and if successful it is a major sea change for the industry, because it eliminates another major player from the landscape of competition,” he said.
As for FedEx, the company said in May 2011 it is not considering acquiring TNT’s Express business, explaining it was too expensive and that it does not need to do a deal in Europe like this.
But that mindset could change, said Wolfe Research President Ed Wolfe.
“We believe Europe is a potentially higher growth and return parcel market than the U.S. and we estimate TNT Express, DHL, UPS and FedEx control 18 percent, 16 percent, 14 percent and 4 percent of the intra-European market,” Wolfe wrote in a research note. “FedEx could be boxed out of Europe for a long time if UPS buys TNT Express.”
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