FedEx to buy TNT to expand Europe deliveries

April 7
6:00 AM 2015

FedEx Corp (FDX.N) is seeking to buy Dutch package delivery firm TNT Express for an agreed 4.4 billion euros ($4.8 billion), aiming to succeed where United Parcel Service (UPS.N) failed two years ago when its bid was blocked by competition regulators.

FedEx and TNT (TNTE.AS) said on Tuesday they did not expect significant opposition from regulators. Unlike FedEx, UPS already had a strong European network when it bid for TNT.

FedEx will offer 8 euros in cash per ordinary TNT share, in a deal that would give the U.S. firm access to TNT's European road delivery network and TNT customers access to FedEx's global distribution platform.

The bid is 33 percent above TNT's last closing price, though below UPS's 2013 offer of 9.5 euros a share. TNT stock leapt more than 30 percent on Tuesday towards FedEx's bid price.

"FedEx has laid on the table an attractive offer price," said ABN Amro analyst Maarten Bakker, who has a "hold" rating on TNT shares.

"With FedEx having always been the most logical predator of TNT Express, we see the chances of a competing offer as slim."

The deal has been unanimously recommended by TNT's supervisory board. TNT's largest shareholder, PostNL (PTNL.AS), also said it would tender its 14.7 percent stake to FedEx. PostNL shares rose 17 percent.


UPS is fighting the decision by European regulators to block its 2013 bid for TNT, but it is unclear when a ruling will come.

The regulatory block was damaging for TNT, which had been counting on adopting much of UPS's logistics backbone.

TNT, which has been losing market share, has cut costs, sold operations and invested in its road network in a bid to hold on to customers in a weak European market for business package deliveries.

"There is no regulatory risk whatsoever," said Kepler Cheuvreux analyst Andre Mulder of the proposed deal, calling FedEx's offer fair in view of TNT's weaker market position.

A rival bid from a competitor such as Deutsche Post (DPWGn.DE) was unlikely because it would risk hitting the 30 percent European market share ceiling UPS ran into, he said.

FedEx has just 2 percent of the European market and almost no overlap with TNT, which has about 15 percent, he said. "FedEx made a smart move and their rivals can do virtually nothing."

FedEx's decision to bid now follows a 17 percent drop in TNT shares over the past year, versus a 21 percent rise in the benchmark Dutch AEX index.

The strong dollar may also have helped: UPS's 9.50 per share offer was around $12.50 in dollar terms. Compare that with FedEx's 8 euro share offer, worth $8.75 today.

TNT warned in February it expected tough trading to continue in its main westernEuropean markets.

It reported a net loss of 137 million euros for the fourth quarter of 2014. It forecast an operating profit for 2015 but expects at least 250 million in further restructuring costs over the coming two years.

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