TNT delivers on promises: Dave Kulik, managing director of TNT's logistics group, shares his strategy following the sale of the company to Apollo Management.(TNT Network Logistics)

Things couldn't look more different between the two largest express/mail companies in terms of their attitude towards logistics. Where Deutsche Post acquired Exel to build a stronger logistics capability within its network of services, TNT NV of Amsterdam has announced the sale of its logistics division to the private equity firm Apollo Management LP for 1.48 billion (euro) (USD1.89 billion).

In making the announcement TNT's Peter Bakker pointed out the company had now delivered on two of the three promises it made in December 2005 when it announced it would exit logistics. One of those promises was a stock repurchase program (to the tune of 1 billion (euro)/USD1.28 billion), which will be followed by another stock repurchase once the logistics division transaction is completed. The third promise on Bakker's list was a focus on optimizing the TNT networks. In addition to its express and mail operations, TNT retains the freight management operations and the recently acquired freight forwarding operations of Wilson Logistics.

TNT's former logistics division won't be without a role in its operations. The two companies have been exchanging services valued at 150 million (euro) (USD192 million) according to Dave Kulik, managing director of the logistics group.

"We provide warehousing and transport services for the mail service," says Kulik. "In Italy, we share a relationship with Telecom Italia, the phone company of Italy." The logistics group manages logistics for Telecom Italia and uses the express and mail services of TNT. "Going forward we've signed service-level agreements between all of the divisions. We'll protect the rate level and service levels."

TNT NV will hold a 5per cent equity stake in the logistics company, representing 50 million (euro) (USD64 million). TNT's Bakker described that part of the transaction as an expression of confidence in the logistics company's future.

Kulik has spent the last three years at TNT's headquarters in Amsterdam integrating various acquisitions and rationalizing the logistics network. "All of the heavy lifting of integrating 11 business units around the world has been done. So we've invested there, we've shed unprofitable contracts," Kulik points out. "We got out of most of the business in France and now we're building our French business unit back up from the ground floor on an organic basis. We're departing from TNT with a great platform that has no incumberances."

Kulik and TNT have clearly been restructuring the logistics division for sale in recent years. As the transaction goes forward, Kulik notes that they will have no divisions that have to be sold off and, "I don't have contracts that are underperforming. I don't have business units that haven't been integrated. So from that standpoint it's a great platform to start."

Is there anything missing from the mix? "I've always had it in my mind that there are non-asset based services and some asset based services that will help us grow our business. I think freight forwarding is one of them," Kulik says. "I think if you look at sub-assembly and contract manufacturing businesses, that can help us in some areas. I think you'll also see deeper relationships with the steamship companies." (China's COSCO for example.)
"Going forward, we're the largest pure logistics company in the world," he concludes. And that is a strong platform for acquisitions and an eventual initial public offering (IPO) that Kulik says he would like to lead. But for the moment, Kulik and the team at Apollo Management are focused on completing regulatory filings and completing the transaction by the end of 2006.