UPS buys TNT for Us$6.8bil
Deal to help bolster its position in Europe p
United Parcel Service Inc reached an agreement to buy TNT Express NV, Europe’s second-largest express delivery company, after sweetening its bid to about 5.16 billion euros (Us$6.8bil).
FRANKFURT: United Parcel Service Inc (UPS) raised its offer for TNT Express NV by 5.6% to 5.16 billion euros (Us$6.8bil) to secure the biggest deal in the US company’s 105-year history and challenge Deutsche Post AG.
UPS will pay 9.50 euros a share in cash for the region’s second-largest express delivery company, up from a bid last month of 9 euros per share and 54% higher than the closing price on Feb 16, the day before the talks were made public, the companies said in a joint statement yesterday.
Atlanta-based UPS’S purchase of TNT will put the company on equal footing in Europe with Deutsche Post’s DHL, the region’s largest delivery operator. UPS, which will have 45 billion euros in revenue following the takeover of unprofitable TNT, expects the combination to bring pre-tax cost savings of 400 million euros to 550 million euros annually after four years.
“I thought that a lot of shareholders would have accepted 9 euros,” said Neil Glynn, a London-based Credit Suisse analyst who has a “neutral” rating on TNT Express. “I think UPS is paying a very, very big number. The synergies they’re seeing are pre-tax, it’s important to remember.”
TNT rose as much as 20 cents, or 2.1%, to 9.54 euros and was up 1.1% as of 12.17pm in Amsterdam trading, giving the Hoofddorp, Netherlands-based company a market value of 5.13 billion euros. UPS closed down 0.7% at US$78.41 in New York on March 16, valuing the company at Us$75.2bil.
TNT announced plans last month to refocus operations on Europe, where its operating profit was 356 million euros last year, after reporting an overall operating loss of 105 million euros in 2011. Losses were 360 million euros in the Americas and 76 million euros in Asia-pacific. “TNT’S business outside of Europe was not of a large enough scale to merit a waitand-see stance,” said Edgar Taverne, a portfolio manager in the Dutch city of Utrecht at Syntrus Achmea, which manages less than 1% of TNT stock on behalf of parent Achmea Holding NV. “The 9.50 euros-per-share price is fair. This was about right for the stand-alone express business.”
Investment in TNT meant that UPS would not in the short term meet its target of a 25% return on investor capital, UPS chief financial
I think UPS is paying a very, very big number. — NEIL GLYNN
officer Kurt Kuehn said on a conference call. Cost savings would be primarily found in intra-national delivery services, the two companies’ air networks and in administration and procurement operations, he said. The cost of combining with TNT over the four-year period will be about 1 billion euros.
UPS, the world’s largest package delivery company, expected to receive regulatory approval for the deal by the end of the third quarter, Kuehn said, adding that it’s too early to say what divestitures might be needed to satisfy antitrust concerns.
“We are confident that we will receive all required approvals and expect to receive competition clearance from the European Commission in phase one,” he said.
Ups controlled 7.7% of the European express parcels market in 2010, compared with TNT’S 9.6%, according to industry researcher Transport Intelligence. Combined, they would be about as large as DHL, which had a 17.6% share.
A bid by UPS or Fedex Corp had been fodder for industry speculation for years as the US companies studied expansion in Europe. Antony Burgmans, the TNT Express board chairman, said yesterday that a counterbid from Fedex was “highly unlikely.” Fedex does not comment on its competitors, said Baerbel Bussenius, a company spokeswoman based in Brussels.
UPS seeks a minimum acceptance rate of 80% of shareholders. TNT’S management and supervisory boards recommended accepting the deal, they said. TNT was spun off in May from the Dutch postal operator, Postnl NV, which is still the largest owner. Postnl said yesterday it would tender its 29.8% stake.
At 9.50 euros a share, the deal values TNT at 13 times its last four quarters’ earnings before interest, taxes, depreciation and amortisation (EBITDA), compared with a median of 10 times trailing EBITDA in nine other similar deals, according to data compiled by Bloomberg.
Buying TNT will be UPS’S biggest purchase since the company was founded in 1907 as a bicycle-messenger service.