Strong support revealed for PostNL and Sandd merger
The majority of the House of Representatives of the Netherlands supports a merger between PostNL and Sandd to sustain the economic viability and quality of the postal service.
An imminent merger between PostNL and Sandd is now looking increasingly likely, with potential cost synergies of €50m-€60m. In combination with the recent annulment of the significant market power ruling, our Long View upside scenario with a fair value of €6.0 per share is within reach.
The State Secretary of Economic Affairs stressed that under Article 41 of Dutch competition law, a potential rejection of a merger by the ACM competition authorities can be bypassed. Yesterday’s discussion in the House of Representatives followed a letter from the State Secretary of Economic Affairs to the Dutch government on 15 June 2018, with recommendations for changes to the Postal Law 2009, based on the conclusions from the postal dialogue earlier this year. The key message was that consolidation of postal operators should be allowed and legislation supporting competition, including significant market power, should be reduced, in order to keep the USO economically viable in a declining market with increasing competition.
PostNL’s view is that Dutch postal regulation should be amended as soon as possible to facilitate inevitable consolidation of postal market players for an orderly & rational adjustment of the market to declining volumes. PostNL’s main competitor Sandd also welcomes consolidation in the market, after a relatively more offensive expansion strategy earlier. PostNL had already considered acquiring Sandd for €100m-€150m at the end of FY15 according to earlier reports in the Dutch financial press, potentially leading to cost savings of €50m-€60m from the integration of networks, but was concerned the takeover would not be allowed. Sandd is PostNL’s largest competitor, with a market share of 20%-25% of the Dutch postal market & pro-forma FY17 revenues of €195m. It is mainly focused on the non-time critical segment (delivering on Tuesday & Friday only), but after the recent acquisition of Van Straaten Post, it is also active in the 24-hour bulk market (partially relying on PostNL’s network).