TNT/Royal Mail: GLS sale would suit both sides

TNT has expressed interest in acquiring Royal Mail’s European parcel unit GLS Holding, among other global targets, to expand its express delivery network and increase market share. Although Royal Mail has yet to make a comment, a possible sell-off could work well with the group’s plans for semi-privatization.

According to the German magazine WirtschaftsWoche, TNT may be planning a series of acquisitions, one of which could be Royal Mail’s subsidiary General Logistics Systems (GLS), CEO Peter Bakker said in an interview.

GLS, formerly known as German Parcel Service, is the European express and parcels business of Royal Mail and has performed strongly over the past three years, generating a turnover of E1.3 billion in fiscal year 2004/05, an 11.6% increase over the previous year. The company has a comprehensive European network, with a strong presence in Germany, Italy, France and the Netherlands in particular.

Should TNT secure the complete acquisition of GLS, the Dutch operator would significantly reinforce its position in the European express and parcels market, just behind DHL in terms of market share. In Germany, TNT would move from the sixth position in the market to the fourth, with a combined market share of 8.1%. In France, the company would reinforce its current second position with an overall 10.3% share of the market, while in Italy TNT would become the leader in the express and parcels market with a combined 21.7% market share.

Nevertheless, this is still guesswork, as TNT has yet to make a move and neither GLS nor Royal Mail has made any official comment on a potential deal. Yet the chairman of Royal Mail, Allan Leighton, has been pushing forward a plan to purchase 51% of the state-owned business on behalf of staff and the company would need significant funding to accomplish the partial privatization. Mr Leighton is proposing to borrow more than GBP2 billion from the City, which would need to be paid back in the short term to avoid the type of financial problems from which the group has just spent several years recovering. In this scenario, the sale of GLS, worth around GBP1 billion (E1.3 billion) seems plausible, although the UK government has yet to approve Mr Leighton’s privatization plans.

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