TNT – adjusting estimates for announced logistics sale
TNT announced the sale of Logistics for €1.48B ($1.85B). On August 23, TNT announced an agreement to sell its Logistics unit to Apollo Mgmt for €1.48B ($1.85B), predominantly for cash with €15M ($19M) in stock. There is no debt. We expect net proceeds of €1.2B ($1.5B) after deal-related expenses and tax deductions. TNT received 6.9x trailing 12 month EV/EBITDA vs. our 6.1x expectation.
Reducing 07 EPS by 10%. We are adjusting our numbers for the removal of Logistics, partially offset by an expected €1B ($1.25B) share repurchase to be completed by 2Q:07. We have made no changes to our operating assumptions for Mail, Express or Forwarding. Including the effects of both the lost Logistics business and the buyback, the deal is dilutive by €0.25/share ($0.30, or 10%).
Higher valued remaining business units offset reduction in EPS. We believe that TNT’s valuation should increase enough to more than offset the 10% reduction in EPS resulting from the disposal of Logistics. The remaining businesses, Mail, Express and Forwarding each should trade at higher multiples than the 6.9x trailing EV/EBITDA that TNT received for Logistics.
We still see the potential sale of Express as a reason to own the stock. We continue to believe that TNT’s Express business would be a potentially attractive acquisition target. With the expected liberalization of all European post offices over the next few years, we expect TNT’s core mail business to become a growth engine again and the timing seems closer for TNT to sell assets to create cash to grow the core business.
Reiterate Outperform and $42 target price. Eliminating Logistics from ‘07 numbers and adjusting for a share repurchase with the proceeds does not alter our underlying operating assumptions for the remaining divisions. We generally have had greater conviction in our Mail and Express estimates than Logistics, so earnings visibility has improved.
Bear Stearns acted as a financial advisor to Apollo Management in its announced acquisition of TNT Logistics.
