FedEx Acquires TNT to Boost Logistical Advantage Over UPS

FedEx

FedEx Corp has confirmed the success of its negotiations for acquiring TNT Express that would boost its logistical advantage and reach compared to United Parcel Service (UPS). TNT Express is a Dutch package delivery company and has agreed to the complete buyout offer. The acquisition will cost a hefty $4.8 billion (4.4 billion euros) as per the agreement. This could provide a major shot in the arm for FedEx, which has been looking to increase its reach and challenge its rivals in the business like UPS, and the German company, Deutsche Post and its subsidary DHL across Europe.

The regulators in Europe had earlier blocked a similar buyout of TNT Express by UPS in the year 2013. There were concerns that UPS would muzzle out the smaller players in the package delivery business. However, as mentioned by the executives and various business analysts Tuesday, April 7, FedEx with its immensely powerful air fleet would complement the vast European road network and service of TNT.

FedExFred Smith, CEO-FedEx Corp., in his statement to business analysts said that though the growth has been low in European markets, this acquisition still provides a huge potential for export and import functioning. Acquiring TNT will give access to its services across Europe including domestic markets in France and UK. He mentioned that there was no major player in those areas as of now. Smith also said that the customers of TNT will be able to access the international distribution network of FedEx.

As per market estimates, DHL is presently the biggest player in package delivery business in Europe with 19 percent market share. It is followed by UPS and TNT with 16 percent and 12 percent respectively. FedEx only has five percent share in the business. This makes the buyout of TNT by FedEx even more important as that would catapult it to second place in the vast European market and result in a massive logistical advantage over UPS.

According to the deal, FedEx has made a cash offering of 8 euros per ordinary share of TNT. This includes an additional 33 percent premium on their value when markets closed last week. It must be noted that UPS had made a much better offer of 9.5 euros per share in 2013. The Memphis, Tennessee-based company will be financing the acquisition deal with debt and is the latest to gain from the low rate of interest. It has been reported that TNT share price shot up by 30 percent Tuesday immediately after news of the acquisition bid broke. At the same time, FedEx’s stock went up by 3.6 percent.

Maarten Bakker, Analyst-ABN Amro, called the buyout offer price ‘attractive’. He also said that there was no chance of seeing a competing offer from another major player. Alan Graf, CFO-FedEx, said that the company would spend aggressively on the integration of the two businesses during the first year. He also said that the acquisition deal would lead to cost synergies in the long-term. TNT’s supervisory board has collectively approved the buyout deal. PostNL, which is the largest shareholder of TNT with 14.7 percent stake, has clarified that it would tender its shareholdings to FedEx. PostNL share price jumped by 17 percent after the announcement. The acquisition of TNT is bound to result in FedEx gaining a big logistical advantage over UPS in Europe.

By Ankur Sinha

Sources:
The Wall Street Journal
The New York Times
Reuters

Photos by:
BriYYZ – Flickr License
Capital Photos / Ruud Taal – Flickr License

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