UPDATE: UPS Bags TNT Express With EUR5.16 Billion All Cash Offer

United Parcel Service Inc. (UPS) Monday said it has agreed to buy smaller rival TNT Express NV (TNTE.AE) in an all-cash deal valuing the Dutch package shipper at around EUR5.16 billion ($6.80 billion).

UPS, the world's largest international package shipper by revenue ahead of FedEx Corp. (FDX), said it is offering EUR9.50 a share for TNT Express.

The offer price is equivalent to a 54% premium to the Dutch company's stock price Feb. 16 when the companies first announced they were in merger talks.

TNT's largest shareholder, Dutch postal company PostNL NV (PNL.AE), has agreed to tender its 29.8% stake in TNT to UPS.

The deal, assuming it passes antitrust scrutiny in Europe, would bring to an end a turbulent period in TNT Express's history in which major shareholders and the company's board fell out over the company's strategy as its performance deteriorated.

For UPS, acquiring the smallest of the big four global package shippers would give the group a market-leading position in Europe to round out its big domestic U.S. presence and expanding Asian business.

"The additional capabilities and broadened global footprint will support the growth and globalization of our customers' businesses," said UPS Chairman and CEO Scott Davis.

"This combination will significantly enhance the capabilities of two strong companies. I am convinced that together we will be the supplier and employer of choice in the express delivery industry," said TNT Express Chief Executive Marie-Christine Lombard.

The combined group would have annual revenue of more than EUR45 billion. Around 36% would be generated outside the U.S.

UPS Chief Financial Officer Kurt Kuehn said he expects to receive the European antitrust authorities to approve the deal without an in-depth investigation, but declined to elaborate on any remedies necessary to secure Brussels' approval.

Antitrust authorities lately have taken a hard line in assessing some big trans-Atlantic combinations. But in a possible sign of its confidence that regulators won't stand in the way of the deal, UPS has agreed to a "reverse breakup fee" of EUR200 million or roughly 3% of the deal's value, which it would pay TNT Express were the deal to fall through. That amount is relatively big by European standards.

Through the acquisition, UPS, which has a market capitalization of around $75 billion, aims to strengthen its business in the fragmented European market.

The Atlanta-based logistics giant expects to improve TNT's performance and estimates cost synergies of around EUR400 million to EUR550 million a year. It will cost approximately EUR1 billion to realize these benefits over a four-year integration period, UPS said.

Synergies will be realized by optimizing operations in various countries, integrating TNT's air network with that of UPS and through integration of back-office activities, like procurement and IT-services.

"UPS' offer for TNT Express has a good chance of being successful," said Maarten Bakker, analyst at ABN Amro. Considering TNT's recent disappointing performance, it's not likely investors will be convinced of other ways of creating more value than UPS's offer.

When the talks were announced, there was market speculate on the likelihood of FedEx Corp. (FDX) launching a rival offer. FedEx had been monitoring the situation, people familiar with the situation said after the UPS offer was disclosed, but so far there have been no signs that it intends to counter bid.

If a successful rival bidder emerges, TNT will pay UPS a EUR50 million break-up fee once UPS had had a chance to match a competing bid.

UPS also said the offer is conditional upon several conditions, including a minimum 80% acceptance level as well as relevant antitrust approvals. Both companies also agreed to a material adverse effect clause, giving UPS the chance to abandon is offer if TNT's performance would materially worsen.

Morgan Stanley, UBS and Bank of America Merrill Lynch are advising UPS on the deal; Goldman Sachs and Lazard are advising TNT Express.

TNT Express shares were up 2% at EUR9.54 around 0900 GMT Monday, a fraction above the UPS offer price. They closed Friday at EUR9.35.

-By Robin van Daalen, Dow Jones Newswires; +31 20 571 52 01; robin.vandaalen@dowjones.com

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