Will the price be right for TNT?

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TNT chief Marie-Christine Lombard today set out a new strategy “Building on Strengths”. The idea is to focus on its strong European business while relying more on partnerships and cooperation agreements to serve the rest of the world.

What she didn’t mention was perhaps the ultimate co-operation agreement – the takeover bid for the company by UPS. TNT has rejected a bid of 9 euros per share. But with its share price currently hovering around the 9.9 euro mark, it is clear that its investors believe that a higher bid is on the way.

At first glance it appears hard to see why. TNT today produced its results for 2011 – an operating loss of 105m euros.

This is mainly down to problems in Brazil. For the full year  the Americas region produced an operating loss of 360m euros compared to a 67m euro loss in 2010. The Asia Pacific region produced a loss of 76m euros compared with an operating profit of 14m euros last year.

And tough conditions in Europe meant that profits were depressed – down four per cent to 356m euros.

In the light of these difficulties, it is not surprising that TNT’s management is focusing on the strong European business and redefining its approach to those areas where it is struggling.

But losses or not, it is still number 4 among the global express players – and just about the only acquisition target that represents a game-changing shift for the big three.

In Europe it is bigger than either UPS or FedEx making it a particularly attractive target for them. There is much speculation that FedEx will take its rejection of the UPS bid as a signal to come in with an offer of its own. FedEx will have to decided whether it wants to slug it out in a bidding war with UPS.

But the big question is: how much of a premium will either UPS and FedEx be prepared to pay? The UPS bid of 9 euros was 40 per cent higher than the 6.4 euros that the shares had been trading at before that. Most financial analysts seem to believe that UPS can go higher before it starts to look too expensive – the question is how high?

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