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UPS abandons €5.2bn bid to buy TNT Express

Monday, January 14th, 2013

UPS has called off its attempt to take over rival integrator TNT Express, after deciding there was “no realistic prospect” of gaining approval from European competition authorities.

The two companies issued statements today confirming that the EUR 5.16bn deal proposed last March is now off, promptly causing TNT’s share price to collapse.

UPS confirmed that it will pay TNT Express a EUR 200 m fee to terminate the agreement to purchase its shares at EUR 9.50, as the deal required in the event of falling through.

The European Commission has repeatedly expressed its concerns that merging UPS and TNT Express into a $60bn-a-year company would reduce the level of competition in the European express parcels market, making it more expensive for small businesses to ship cross-border.

The Commission has been investigating the merger since July, and in October issued a formal Statement of Objections, which UPS and TNT at the time described as being a normal part of the approval process for major mergers.

Despite twice making offers to the Commission over the winter pledging to sell parts of the company to placate competition concerns, this morning Atlanta-based UPS revealed that it has been informed by the European Union’s executive branch that it will decide to prohibit the deal from going ahead.

Scott Davis, UPS Chairman and CEO said today that his firm was “extremely disappointed: with the Commission’s position.

“We proposed significant and tangible remedies designed to address the EC’s concerns with the transaction. The combined company would have been transformative for the logistics industry, bringing meaningful benefits to consumers and customers around the world, while supporting growth in Europe in particular,” said Davis.

UPS chairman and CEO Scott Davis said a merged UPS-TNT would have been “transformative” for the industry

UPS said further announcements would be made once the Commission formally adopts its decision to block the deal.

But, the Atlanta-based package shipping giant said it would pursue growth opportunities elsewhere.

“Looking ahead, our company focus will be on the continued execution of our growth strategy. While we viewed the acquisition as a compelling growth platform, our financial strength allows UPS to capture future opportunities,” said Davis.

“Inevitable”

TNT Express confirmed today that UPS will not pursue the deal “on any other basis” than its latest offer to the European Commission, and said a formal termination notice regarding the deal would come from UPS as soon as the Commission makes its decision official.

The Netherlands-based company said it was deeming this prospect as “inevitable”.

“TNT Express regrets this situation, having believed the merger was feasible and beneficial for all stakeholders,” the firm said in a statement this morning, adding its confirmation that it expects a EUR 200m pay-off from UPS when the deal officially folds.

Meanwhile, the collapse of the UPS deal has left TNT Express damaged, with the company conceding today that the whole year-long affair, had been a “distraction” for its management team, which was hit by the surprise exit of chief executive Marie-Christine Lombard in September, as she pre-empted the assumption that the UPS deal would go ahead with a move to Geodis.

The potential merger has seen rival integrators including FedEx and DHL picking up customers from TNT Express who were concerned about the implications of the deal.

Investors were already beginning to tire of the protracted regulatory hurdles to the deal, according to analysts speaking to Post&Parcel, and this helped the TNT Express share price fall significantly below the EUR 9.50 offer price even before today’s announcement.

This morning, at time of writing, the TNT Express share price was whimpering at a EUR 4.70 level, down 43%.

As a result, TNT insisted today it was now solely focussed on working to reassure TNT Express customers, engaging with employees and strengthening its strategy to improve profitability.

“The Executive Board and Supervisory Board of TNT Express acknowledge the great value of the company’s operations, people and commercial proposition, and are confident its strategy will bring value to shareholders,” the firm said.

PostNL

The collapse of the UPS deal will also have implications for Dutch postal service PostNL, which had been expecting a EUR 1.5bn windfall from its 29.8% stake in TNT Express, which it had since it demerged from the company back in Mary 2011.

The company’s financial results will likely suffer from the reduced TNT Express share price, and this morning its share price dropped by 35.63% (at time of writing) to EUR 1.85.

PostNL said this morning that it had noted the announcements from UPS and TNT Express, and indicated that it would still be looking to sell its stake in TNT Express, though over a longer period.

Herna Verhagen, CEO of PostNL, said: “The transaction between UPS and TNT Express would have maximised the value of our stake in TNT Express. If upon a formal decision of the European Commission, the acquisition of TNT Express is not pursued, we expect that we will monetise the stake over the medium term to create better value for shareholders, after we have seen stability return to TNT Express.”

PostNL said that meanwhile it will be continuing to work on reorganising its own business in the Netherlands, restructuring the mail network while expanding its parcels infrastructure.

Source: Post&Parcel/UPS/TNT Express

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