UPS frees up $2bn more cash for TNT Express deal
UPS has toned down its plans to repurchase its stock, as it prepares to shell out $5bn in cash and raise a further $1.8bn in new debt to buy TNT Express. The company advised investors yesterday that it was likely to buy back $1.5bn in its own shares this year, rather than the $2.7bn stated in January’s guidance.
The same level of buy-back activity is also expected in 2013.
UPS had its $6.8bn offer to buy its European integrator rival accepted back in March, and believes the deal should be concluded in the third quarter once EU regulators have given the green light.
The company revealed yesterday how it will buy TNT Express, with the changes to its share buy-back plans helping it to use $2bn more in cash to finance the deal. UPS had originally planned to use $3bn in cash and fund the rest of the deal with debt.
The $5bn in cash that UPS will now use to buy TNT was about the same amount of free cash flow the company generated in 2011, even after spending $2.7bn that year buying back shares, $2bn on capital expenditure and $1.4bn in pension contributions.
“UPS’s legacy of financial strength allows us to complete the acquisition of TNT primarily using cash,” UPS Chairman and CEO Scott Davis said.
“We believe this acquisition creates a global leader in the logistics industry, enhancing long-term growth for UPS investors.”
The UPS Board declared a $0.57 per share dividend this week, a 10% increase on the same quarter last year, that will be paid at the end of this month.
CreditWatch
Ratings agency Standard & Poor’s said today that its negative assessment of UPS’s AA- credit profile, as issued in February, remained in place.
Although the company forecasts that UPS sill improve its business profile in Europe and other international markets by buying TNT Express, S&P said initially the deal is expected to cause a “deterioration” in UPS’ credit metrics.
S&P is also concerned about the potential burden from UPS taking on TNT Express pension liabilities.
“Any negative rating action likely would be limited to one notch, based on the company’s proposed transaction financing, TNT Express integration plan, share repurchase plans, and multiemployer pension plan exposure,” said the ratings agency.
