UPS agrees €5.16bn deal to buy TNT Express

TNT Express has agreed to a deal for its acquisition by UPS, after the US parcel delivery giant offered an increased offer valuing the company at about EUR 5.16bn ($6.77bn USD). The companies issued a joint statement today confirming the agreement based on a value of EUR 9.50 per share, which remains subject to shareholder approval, the possibility of a significantly bigger offer from another rival, and consent by European competition authorities.

UPS had an offer of EUR 9 per share rejected last month.

The new all-cash offer represented a 53.7% premium on the February 16 share price, the companies said.

UPS and TNT Express said the approved deal would create a “global leader in the logistics industry” with annual revenues of more than EUR 45bn ($60bn USD), giving UPS in particular a better presence in emerging markets in Asia and the Middle East as well as in Europe.

The deal would give UPS a considerably larger share of the European express market than it currently enjoys, as well as expanding the Atlanta-based corporation’s intra-Europe road freight network.

It will also expand the UPS reach in Asia and Latin America, particularly in China and Brazil, although TNT Express operations in those countries are currently loss-making. About 36% of combined revenues are expected to be generated outside the US on completion of the deal, compared to 26% for UPS today.

Scott Davis, the UPS chief executive, said the two companies would “significantly” improve their service to customers’ “complex” global logistic needs.

“The additional capabilities and broadened global footprint will support the growth and globalisation of our customers’ businesses,” he said. “At the same time, this positions us for future growth, which will benefit our employees and shareholders.”

UPS executives said they expected to get clearance from the EU Commission from the first phase of the proposed offer, and for the deal to be completed in the third quarter of 2012.

Integration

UPS said acquiring TNT Express will bring some overlaps, with around EUR 400-550m in cost synergies expected.

A joint integration committee will be set up to harmonise the companies, using both UPS and TNT assets, with integration expected to take up to four years to complete. The current TNT Express workforce numbers around 77,000, while UPS has 400,000 employees worldwide.

UPS CFO Kurt Kuehn said operational integration would be delayed to make sure customer service is not affected for both UPS and TNT customers.

“The customer-centric integration will delay operational synergies slightly, but will guarantee that customers of both services will continue to enjoy the service they are accustomed to during this complex and long integration,” he said.

The US company promised a “principle of fairness” in integrating the two companies following the acquisition, conceding that redundancies will be necessary. UPS suggested it was hoping to maintain TNT’s presence in Liege, the Belgian airport where TNT Express has special access rights.

Marie-Christine-Lombard, the TNT Express chief executive, said today it was a “difficult day and a great day” for TNT Express, saying: “TNT Express is a proud company, and it is difficult to be acquired.”

Nevertheless, she added that after “difficult” negotiations with UPS, the proposals had been carefully reviewed before both boards recommended the current offer. “I am convinced that the combination of these two companies, the complementary portfolio that we will be able to sell will really deliver the global leader that will be unequaled,” said Lombard.

Following the acquisition, the TNT Express board is expected to have three members put forward by UPS and two members of the current board, Shemaya Levy and Margot Scheltema, will remain in place for at least three years.

PostNL

The acquisition has the unanimous support of the executive and supervisory boards of TNT Express, and also has the approval of major shareholder PostNL. The Dutch postal service has held a 29.8% stake in TNT Express since demerging from the company last May.

PostNL issued a statement today confirming it has “irrevocably” agreed to sell its shares to UPS under the terms of the offer, assuming a bigger offer does not come forward from another buyer. PostNL said it would use almost half of its income from the share sale to pay down some of its debt.

An offer from a rival like FedEx would have to be at least 8% higher than the UPS offer to break the terms of the UPS agreement.

PostNL said: “If the offer will be effected at the offer price of EUR 9.50 for each TNT share, it is expected that PostNL will receive a cash amount of approximately EUR 1.54bn.”

PostNL said if the deal between UPS and TNT Express is not concluded by 19 September, 2012, it will have the right to sell a 10% stake in TNT Express.