TNT Express Rebuffs UPS, but Talks Continue on Deal

UPS Inc. said late last week it was continuing talks to buy European package carrier TNT Express, after the Dutch company rebuffed a $6.5 billion bid, sparking speculation that a higher price and other bidders, such as FedEx Corp., could emerge.

As of press time, no developments had been announced beyond the TNT Express announcement Feb. 17 that UPS, the world’s largest package delivery company, made an unsolicited offer of 9 euros ($12) per share and that the bid was rejected.

Over the next five days, TNT shares topped 10 euros, signaling that investors expected a higher offer. The UPS bid was 42% above the stock price before the offer was made.

“While FedEx could participate in the bidding process, we believe that UPS can afford to pay more for TNT and will ultimately become the likely victor,” Credit Suisse analyst Chris Ceraso wrote in a Feb. 21 report.

Other analyst reports also said FedEx, the world’s second-biggest package delivery company, could make a bid for all of TNT Express or seek contract arrangements with TNT Express to counter UPS’ move.

UPS and FedEx offered brief responses when asked for comment by TT.

“We’re not going to discuss the closed-door negotiations,” UPS spokesman Norman Black said.

“As a matter of policy, we do not comment regarding corporate development matters,” said Jess Bunn of FedEx.

If successful, UPS would rival DHL Express, the package express arm of Germany’s Deutsche Post, as the largest package express operator in Europe, analysts said.

Bloomberg News reported that DHL has a 17.6% market share for European express deliveries, compared with 7.7% for UPS and 9.6% for TNT, citing Transport Intelligence, a market research firm.

FedEx’s share in Europe is 3.3%, according to Transport Intelligence.

William Blair & Co. analyst Nate Brochmann said in a Feb. 21 report the acquisition could help UPS in European countries where the economy is strong, such as France and Germany. It would also boost its share of Asia-Europe express shipments.

Brochmann also said the acquisition price “appears rich,” given TNT’s performance and prospects, though UPS would gain European market share and enhance its global marketing approach.

“Unlike the U.S. market, the European market remains highly fragmented with 50% of the revenues being generated from non-integrated carriers,” Credit Suisse’s Ceraso said. “Given the large degree of fragmentation, UPS has the potential to further grow its share.”

More than 60% of TNT’s revenue is generated in Europe, where it has an 8% profit margin on shipments, according to company reports.

During 2011, TNT lost 270 million euros because of one-time costs related to its spinoff from the Dutch post office in May, and losses outside Europe.

The year before, net income was 66 million euros. Revenue in both years was about $10 billion.

By comparison, UPS last year had $3.8 billion in net income and $44 billion in package revenue.

TNT Express said it would concentrate efforts to turn around profitability by trying to strengthen its European presence, reduce its airline fleet and scale back its business levels in money-losing markets.

Bloomberg reported that TNT Express is seeking a bid higher than the current 9 euros per share, citing a person familiar with the negotiations who asked not to be identified.

The Dutch company’s board is also unhappy with conditions attached to the current offer that may require divestitures to win regulatory approval and possibly lead to job cuts, the source said.

In 2010, TNT announced the separation of its Express and Mail divisions to become two independent companies — TNT Express and PostNL.