UPS, TNT receive Statement of Objections from European Commission over proposed mega-deal

The latest chapter regarding UPS’s planned $6.28 billion acquisition of Netherlands-based TNT NV, a provider of mail and courier services and the fourth largest global parcel operator, came late last week in the form of a Statement of Objections (SO) from the European Commission.

UPS and officials said that the SO “addresses the competitive effects of the intended merger on the international express small package market in Europe,” adding that the competitive effects will be further defined as the process continues.

While specific details of the SO were not released, UPS and TNT said that the SO is a normal step in a second phase merger and is a confidential document that sets out a provisional position of the Commission and does not prejudge the final outcome of the case.

“UPS and TNT Express believe competition in Europe continues to be significant, coming from multiple players who offer similar services,” UPS and TNT said in a joint statement. “The combined company will help create a more efficient logistics market, thereby improving the competitiveness of Europe and the solutions offered to businesses and consumers.   Those benefits include future improvements to e-commerce to help achieve the EU objective of a Digital Single Market.   In addition, customers and consumers will benefit from a broader portfolio of services and better global access, along with lower supply-chain costs overall and improved service levels in terms of timing and reliability.”

The companies also said that they have been working closely with the European Commission during this process and aim to complete the transaction by early 2013. In mid-July UPS said that the European Commission’s review of the proposed acquisition were to move to a “Phase II review,” because there are facets of the deal that require more time to analyze.

That was followed by an early September announcement that the extension of the Offer Period for the deal was formally extended from August 31 to November 9 in a regulatory announcement, because “not all conditions for completion of the Offer, in particular the condition on competition clearance, were fulfilled upon the expiry of the initial Offer Period on August 31, 2012.

And a Bloomberg report published in July said that EU regulators extended their review of UPS’s bid to acquire TNT by ten working days until December 12. According to the report, the EU did not specify the reason for the delay which was signaled in an online filing on July 27. It added that the time limit for regulatory review of deals can be prolonged at the request of companies.

A report from London-based Transport Intelligence said that while UPS and TNT said that the EC objections are confidential, a “mixture of rumors and hints by the Commission imply that concerns focus on services to and between ‘peripheral’ countries in Europe, such as those in southern Europe.”

And TI also noted that while it is dangerous to rely on rumors that fact that competition issues within the major markets of Northwestern Europe appear to have not been raised suggests that the core of the merged companies would not be deemed to be a threat to competition in general. 

Stifel Nicolaus analyst David Ross wrote in a research note that the EC and UPS/TNT appear to differ on the size of the parcel market, which Stifel believes is the “main basis for objection to this merger.”

What’s more, Ross noted that the UPS/TNT combination should create the most industry concentration in a few European countries, leaving the possibility that the EC may require a divestiture of some assets in those countries to effectively sell the TNT portion to someone besides UPS for the merger to be approved, but he cautioned that is speculation, given that the EC’s interaction with TNT and UPS is confidential.

As previously reported, the joint synergies expected to result from this deal, according to UPS and TNT include:
-the complementary strengths of both organizations creating a customer-focused global platform that will be a leader in transportation technology and customer service;
-TNT Express customers benefiting from UPS’s unparalleled access to the North American market as well as access to its logistics solutions, such as global freight forwarding and distribution capabilities; and
-UPS customers will benefit from access to expanded express and road freight capabilities in Europe and broader capabilities in fast-growing regions such as Asia-Pacific and Latin America.

“We intend to leverage the strengths of both companies to enhance the combined growth portfolio and believe all stakeholders will benefit,” said UPS Chairman and CEO Scott Davis on an investor call in March. “UPS possesses a large U.S. presence, as well as experience in global supply chain management. TNT Express provides additional small package access points in Europe, the most extensive European express road network, and an expanding presence in emerging markets.”

Over the years, TNT has grown into a highly respected $7.25 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, said UPS CFO Kurt Kuehn on the March investor call. And he added TNT 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 77,000 employees. IN 2011, TNT had a net loss of $270 million euro and $7.2 billion euro in revenue.