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UPS says it remains in constructive discussions with TNT Express N.V. over possible acquisition

By Jeff Berman, Group News Editor
March 16, 2012

Following reports that talks focusing on UPS trying to acquire the express business of Netherlands-based TNT NV, a provider of mail and courier services and the fourth largest global parcel operator, “have slowed” due to various issues, UPS said today that it “remains in constructive discussions” with TNT regarding a potential transaction to acquire the entire issued share capital of TNT Express.

“In line with regulatory requirements, UPS expresses it still has the intention to submit a request for approval of its offer document to the Netherlands Authority for the Financial Markets (AFM) within 12 weeks from its initial announcement of Feb. 17, 2012,” UPS said in a statement.

A March 6 Wall Street Journal report suggested that talks between UPS and TNT had slowed down, but it cited people familiar with the matter as saying there is a hope a deal will be reached although talks are likely to take multiple weeks. And it added that UPS and TNT disagree on personnel issues and whether TNT’s headquarters would continue to serve as the base for the combined business.

It also stated that there have not been discussions about the number of cuts to TNT’s 77,000 employee base would be needed, coupled with the fact that price has not been discussed in detail again—both signs that a final deal could still be far off. Job cuts at TNT are a concern as TNT Express is a union operation, and the report cited a Netherlands union official as saying “maintaining jobs is their top absolute priority.”

An industry source told LM that unions representing TNT Express workers want some guarantees there will not be massive layoffs at TNT.

In February, UPS made an unsolicited bid of $6.43 billion ($4.89 billion euros), which was roughly 40 percent above TNT’s stock price. The offer was turned down by TNT although the company said they were in discussions, which remains the case today.

The developments in recent weeks represent a change in direction for UPS in the sense that in December 2010, shortly after TNT first announced its plans to sell off its Express unit, UPS said it would not be a potential buyer of the unit.

As LM previously reported, UPS CFO 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.

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, in a recent interview. “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.”

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.”

The source added that if FedEx is to make an offer, they will have to walk carefully as it has its fiscal second quarter earnings call next week and will need to avoid issues with the SEC if they want to enter the bidding.

And the source noted, like Wolfe, that if UPS does acquire TNT Express, FedEx will be at a real disadvantage in Europe in particular for intra European moves compared to the very low operating cost basis UPS/TNT would have because of their critical mass. What’s more, the source explained this could be viewed as a real game changer as it would bring the global express business down to three major players, as was the case when DHL Express exited the U.S. in January 2009 and left UPS and FedEx as the top two carriers in the U.S.

In this case, the source said that Europe would be comprised of TNT and DHL competing for the majority of market share, with FedEx having less than 5 percent of market share.


About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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Article Topics

News · Global Logistics · UPS · Express · TNT NV · TNT · All topics


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