UPS/TNT Deal Appears Doomed
January 14, 2013 - SCMR Editorial
Since March 2012, when UPS and Netherlands-based TNT NV, a provider of mail and courier services and the fourth largest global parcel operator, said they reached an agreement in which UPS would acquire TNT Express, a provider of mail and courier services and the fourth largest global parcel operator for roughly $6.8 billion, the deal has seen more that its share of stops and starts for various reasons.
But today it appears that current state of the deal is firmly now part of the former.
UPS officials said that the European Commission (EC) had told both UPS and TNT Express that “it is working on a decision to prohibit the proposed acquisition of TNT Express.”
“We are extremely disappointed with the EC’s position,” said Scott Davis, UPS Chairman and CEO, in a statement. “We proposed significant and tangible remedies designed to address the EC’s concerns with the transaction. The combined company would have been transformative for the logistics industry, bringing meaningful benefits to consumers and customers around the world, while supporting growth in Europe in particular.”
The EC’s decision follows a series of competition-related obstacles coming from the EC and the European Union, going back the last several months, including:
a November filing by the European Commission, which cited the European Union (EU) Competition Commissioner as saying UPS needs to offer “substantial remedies” to eliminate concerns of the deal which would double its size in Europe;
multiple extensions of the Offer Period for the deal and a Statement of Objections (SO) put forth in late October by the European Commission (the SO addresses the competitive effects of the intended merger on the international express small package market in Europe”); and
a Bloomberg report which said UPS received antitrust objections from regulators which listed potential problems with the deal, including how buying TNT would remove one of the few serious competitors in the European delivery services market.
A November Wall Street Journal report indicated pointed out that given the antitrust concerns over this deal, UPS was separately working on several possible remedies as the November 29 deadline to offer concessions got closer. Among the concessions, according to the report, was UPS’s U.S. group shrinking its existing presence in the international parcel delivery sector of Europe, where there are the most serious objections to the deal.
Stifel Nicolaus analyst David Ross wrote in a research note at that time 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.”
UPS said today that upon prohibition by the EC, the Offer Condition relating to the EU Competition Clearance will not be fulfilled and UPS will pay TNT a termination fee of $267 million (USD) and withdraw the offer.
Davis added that going forward, UPS will focus on the continued execution of its growth strategy, adding that although he viewed the acquisition as a compelling growth platform, UPS’s financial strength allows it to capture future growth opportunities.
When the proposed deal was first announced last year, UPS and TNT envisioned myriad joint synergies, including:
the complementary strengths of both organizations creating a customer-focused global platform that would 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 benefiting 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.
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.
TNT officials said that TNT Express’ Executive Board and Supervisory Board recognize that the merger process has been a distraction for management, adding that management will focus on reassuring customers of TNT Express’ commitment to providing industry-leading services; ensuring engagement and commitment of employees; and strengthening its strategy, including further steps to improve profitability.
“Based on the maneuverings of TNT to configure the firm for an acceptable acquisition and the length of time all this has taken I believe that the EU may now have dealt TNT a death sentence,” said Jerry Hempstead, president of parcel consultancy Hempstead Consulting. “Because of all the uncertainty the customers made moves and many employees lost focus and energy. You will see this in the next quarterly report.
Now TNT has to rebuild and I’m not certain the $200 million will be enough to save them in the long run. I’m not convinced the EU understand that their may be unintended consequences to this action.”
UPS officials said that further announcements regarding this development will be forthcoming when the EC’s final decision is official in the coming weeks.
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