Deal or no deal

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What a difference a year makes. This time last year UPS and TNT Express were locked in negotiation over the price of a takeover bid. Now, they have to come to terms with the fact that the €5.2bn deal they finally agreed has been blocked by the European Commission.

For most of the past year, TNT’s management has been focused getting the deal done. For example, it put together a plan to sell TNT Airways. It has also lost its chief executive, Marie-Christine Lombard, during the process. The €200m termination fee, that UPS will pay, will be small comfort.

It became clear that the European Commission had problems with the deal in November when Joaquín Almunia, vice president of the European Commission responsible for competition policy, told a conference on competition policy that a UPS takeover of TNT raised serious competition concerns and substantial “remedies” were needed.

UPS and TNT Express responded with a list of remedies including the sale of business activities and assets in combination with granting access to air capabilities.
There have been reports that UPS was trying to sell parts of the business to FedEx and DPD, but what is clear is that it could not come up with a package that would convince the commission that competition in the EU would not be compromised.
The speculation that TNT could be a bid target from either UPS or FedEx started as soon as it was demerged from the Dutch post office in May 2011. As the smallest of the big four integrators it was reckoned to be the last major acquisition opportunity.
FedEx is widely regarded as the only other player that could realistically mount a bid. Deutsche Post DHL might have the wherewithal, but would face massive competition problems with the EC.

However, shortly after the demerger in 2011, FedEx ruled out a bid, saying that TNT was too expensive. Since then it has been developing its network with a series of small acquisitions.

TNT has said that it recognised the protracted merger process had been a distraction for management, and now plans to make up for lost time focusing on further steps to improve profitability.

The commission might have stymied this deal, but the business logic for further consolidation in the express market remains. The market is maturing. An A T Kearney study last year found that while the market was growing, revenue per shipment was declining. Operators need to find further economies, and consolidation is an obvious way of achieving that.

There are still plenty of deals to be done.

Malory Davies FCILT,

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