BUSINESS

UPS shrugs off European economic woes, launches $6.8 billion bid for TNT Express

03/19/2012 06:59 EDT | Updated 05/19/2012 05:12 EDT
AMSTERDAM - United Parcel Service Inc. said Monday it will buy Netherlands-based TNT Express NV for $6.77 billion (€5.16 billion), in a deal that will create a company with annual sales of €60 billion.

Atlanta-based UPS is the world's largest delivery company, while Hoofddorp, Netherlands-based TNT is the second-largest express mail company in Europe behind Germany's DHL. The combination will have 475,000 employees worldwide and increase UPS's international sales to around 36 per cent of its total from 26 per cent at present.

The merger is not expected to face serious opposition from antitrust authorities, as TNT has virtually no presence in the U.S., while the European market is highly fragmented.

In a conference call following confirmation of the deal, UPS Chief Financial Officer Kurt Kuehn said the companies are a "strong business and cultural fit." He added that TNT will improve UPS's reach in Europe and other markets where TNT has operations, primarily Latin America and Asia.

The agreed cash deal values TNT at €9.5 per share. TNT's largest shareholder, Dutch postal company PostNL, said it has committed to tendering its 29.9 per cent stake to UPS.

The UPS bid represents a 54 per cent premium to TNT's closing price on Feb. 16, but is only 5.6 per cent higher than the €9 "informal" offer UPS made the following day, which TNT's management rejected.

TNT shares closed at €9.35 on Friday in expectation of a higher offer. They rose 1.9 per cent in early trading Monday to €9.525, a fraction above the offer price, signalling some investors are holding out hope for another sweetener.

"The token 50 cents improvement on last month's informal proposal is hardly surprising," said SNS Securities analyst Geert Steens. "TNT Express has since released disappointing results, confirming the sad state of most of its non-European businesses."

He advised investors to "take what is currently on the table."

On Feb. 21, TNT reported a loss of €173 million ($229 million) for the fourth quarter, including a €104 million charge on its Brazilian arm and another €45 million to write down the value of its airplane fleet. Revenues rose 2.8 per cent to €1.85 billion ($2.5 billion).

Challenged on why UPS wants to expand in Europe at a time the continent's economy is faltering in the wake of a raging debt crisis, CFO Kuehn said it shows the company's "long-standing commitment to Europe."

He said the deal will be earnings-enhancing in the first year, and that by 2015 the companies will save at least €440 million annually from combining operations such as software and logistics systems.

Kuehn declined to answer questions about potential sales of operations or job cuts at TNT. He said he expects the deal to close in the third quarter of 2012.