Losing logistics gives a logic to TNT business
No sooner had TNT announced it was pulling out of logistics, than its chief executive moved swiftly to dispel the impression that the company had been bullied into action.
Peter Bakker told the Financial Times: “I want to take away the impression this is a knee-jerk reaction to pressure. We are convinced that we have now a business logic that works.”
However Mr Bakker, who has been under pressure on a number of fronts, revealed that US investors had been talking to the company about a share buy-back for two years. And he conceded the rising trend in investor activism.
“Of course shareholders are more vocal and shareholder activism doesn’t go unnoticed. That forces management to look at all angles to create value. But I do not believe that should lead to reactions. Shareholders are best served by management teams that can create value.”
Nonetheless, Petercam analyst Thijs Berkelder, said: “TNT finally is listening to its shareholders.”
And investors welcomed TNT’s decision with relief. They will have further reason to cheer if the Dutch group delivers on its pledge to use the proceeds of the divestment to return funds via buy-backs or a revised dividend policy.
The deliberations to sell logistics were lengthy but the rationale was blindingly obvious. The unit made an operating profit of Euros 68m (Dollars 80m) in the first nine months of this year, or 7.6 per cent of group earnings before interest and tax, although generating about one-third of sales.
The logistics activities have stubbornly resisted the company’s best efforts to lift margins, which have crashed from an attractive6 per cent in 2000 to barely4 per cent.
“The whole industry is operating below the cost of capital. As a management team you have no choice (but to get out). We would have loved to break the margin trend. Even though we are doing better than others it is not good enough,” said Mr Bakker.
“We decided to focus on network businesses (express and mail). TNT should not spend time in a business that has different dynamics.”
It believes there are plenty of potential buyers. Mr Bakker said: “It is an attractive business, ready to be sold.”
His preference is to sell it intact. “(There will be) parties interested in buying it in one go. It happened with Exel and that was larger than us. But I can imagine other scenarios where it will take place in parts.”
He did not expect anti-trust issues to be a factor in the sale, saying: “It is still a very fragmented market. We have only 3-4 per cent market share.”
Nor was there any indication that a continuing probe of the tax affairs at a number of unnamed TNT subsidiaries was likely to hinder the sale process, he said. “We have not established any reason why that would be the case, as yet.”
