Analysts say Airborne deal faces tough battle
Industry analysts say DHL Worldwide’s proposed acquisition of Airborne Inc. will receive intense scrutiny from the U.S. Department of Transportation.
Greg Burns of J.P. Morgan Chase believes the deal will be approved because of its impact on competition despite fierce opposition from FedEx Corp. and United Parcel Service.
“While DOT may delay the transaction, we believe the large-scale market position of FedEx and UPS combined and the relatively small market share of Airborne/DHL will make the DOT reluctant to block a transaction that does not appear to violate U.S. law,” he said.
Other analysts were more skeptical. Scott Flower of Salomon Smith Barney gave the deal a 60 percent chance of approval, but noted that it will also be subject to political pressures. Flower said he expects the Teamsters union, which represents about 250,000 UPS workers, to flex its political muscle to oppose the deal.
At the same time, FedEx and UPS are continuing to wage a fierce campaign against DHL’s ownership of DHL Airways. The parcel delivery companies won an important victory in March when DOT’s inspector general, Kenneth Mead, criticized the agency’s handling of the DHL Airways case.
Germany’s opposition to the U.S.-led war against Iraq could add to Congressional pressure on DOT, Flower said. DHL is owned by Deutsche Post World Net, the partially privatized postal monopoly that also owns Danzas AEI International. Forwarders such as BAX Global and Menlo Worldwide may also oppose the deal because their domestic delivery networks would face more vigorous competition from a strengthened DHL.
The deal, which calls for Airborne to spin off its airline subsidiary, ABX Air, is structured in such a way that it seems to comply with the letter of the law, Flower noted. But opponents are likely to argue that it violates the spirit of the law, since the primary customer of the new airline would be DHL, a foreign-owned company.
Ed Wolfe, an analyst with Bear Stearns, said he remains cautious about DHL’s ability to obtain regulatory approval without a relatively drawn-out process. “Our sense is the transaction as currently structured would effectively result in DP’s control of Airborne’s domestic airline assets,” he said.
Wolfe noted, however, that the agreement requires DHL to proceed with the purchase of Airborne even without DOT approval. In that case, DHL would pay Airborne shareholders $21.65 a share, instead of the $21.25 plus one share of the new ABX Air originally envisioned if regulators approve the transaction.
The deal, announced March 25, is scheduled to close on July 25.
It is also possible that the Airborne acquisition could be blocked by the U.S. Committee on Foreign Investments, an inter-agency panel chaired by the Treasury Department, Wolfe said. It reviews mergers, takeovers and acquisitions from a national security perspective
In addition, Congress could step in with new legislation designed to block the acquisition.
