UPS-TNT Express deal falls apart

by Array

AMSTERDAM, Netherlands—United Parcel Service Inc (UPS) has ditched its $6.8 billion (5.2 billion Euro) takeover of TNT Express NV after learning that European regulators would reject the deal in its current form.

UPS had offered to buy struggling TNT, Europe’s second-largest delivery company, in March 2012, to better compete with Europe’s largest, Deutsche Post’s DHL. But in October, regulators said that the deal would lead to over-concentration in the sector.

In response, UPS offered to sell parts of the company’s small package operations and airline assets. But after meeting with regulators on January 11, UPS told TNT it saw no prospect of the deal being approved—and it wasn’t interested in further concessions.

Problems have plagued the deal all since it was announced. In its last earnings report, for the third quarter of 2012, TNT lost $3.94 million (three million Euros) on sales of $2.37 billion (1.8 billion Euros). Former CEO Marianne-Christine Lombard quit the company in September—in the middle of the takeover—in a move that was criticized as “unethical” by TNT’s chairman, Antony Bergmans, and interpreted by some as a sign the deal was in trouble, since she stood to gain a $3.42 million (2.6 million Euro) bonus for seeing it through to completion. She was replaced on an interim basis by CFO Bernard Bot.

In a statement, TNT conceded that the “protracted merger process has been a distraction for management” and that it would now focus on reassuring customers, encouraging employees and making money.

“Management will provide an update on its strategy in due course,” the company said.

UPS CEO Scott Davis said he was “extremely disappointed” with the stance taken by regulators on what would have been his company’s largest-ever acquisition.

“We proposed significant and tangible remedies designed to address the European Commission’s concerns with the transaction,” he said, adding that the deal would have benefited customers worldwide and supported economic growth “particularly in Europe.”

The European Commission will publish its review of the failed deal within several weeks.

Before UPS’s bid for TNT Express, some analysts thought rival FedEx Corp might make a bid for the company, but in March FedEx executives said they had no plans to do so.

SNS Securities analyst Geert Steens said European regulators have signalled they would not view a takeover by FedEx or—less likely—DPD, a unit of France’s La Poste, as problematic. But there is little guarantee either will bid for TNT in the current climate.

TNT’s assets in Asia and Latin America are part of the reason for its attractiveness as a takeover target, but the company’s Brazilian operations ran into severe problems in 2010-2011 and were loss-making in the third quarter.

Though TNT will receive a $262 million (200 Euro) break fee, it faces an uncertain future on its own and nearly $2.63 billion ($2 billion Euro) has been wiped off its share price in Monday trading in Amsterdam. At one point, its shares plunged by 50 per cent before rallying for a slight recovery.