By Laura Stevens in Atlanta, Maarten Van Tartwijk in Amsterdam and Tom Fairless in Brussels
FedEx Corp. on Tuesday said it agreed to buy Dutch
package-delivery company TNT Express NV for $4.8 billion in an
all-cash deal, making an end run around rival United Parcel Service
Inc. and positioning itself for a big boost from the booming
European e-commerce business.
FedEx already has a sizable air-express delivery operation in
Europe, but it lags behind in the ground-delivery business.
Acquiring TNT would give it an established door-to-door rood
network in Europe that connects more than 40 countries, saving the
U.S.-based company the time and money required to build one from
scratch.
"The combination of FedEx's existing network and TNT's broad
ground-based network will offer tremendous opportunities for us as
a result of enhanced coverage, a broader portfolio, obviously,
better pickup and delivery cost; and, obviously we're very excited
about those opportunities," said T. Michael Glenn, FedEx's
executive vice president of market development, on a conference
call with analysts.
But the FedEx-TNT deal is subject to approval by European Union
regulators. In January 2013, EU regulators quashed an effort by UPS
to acquire TNT for about $7 billion, unraveling an agreement that
was about a year in the making. Then, as now, executives of both
companies were sure that regulators would green-light the deal.
FedEx officials said on Tuesday's conference call that things
are different this time around. FedEx has a smaller footprint in
Europe than UPS and overlaps less with TNT's existing business.
They said their merger would create a stronger competitor to UPS
and Deutsche Post DHL Group's DHL unit, the market's dominant
players.
"This deal is much better and simpler," compared with the UPS
deal, TNT Chief Executive Tex Gunning said at an Amsterdam news
conference. "There is little overlap; our businesses are
complementary."
FedEx said it began negotiating with TNT six weeks ago, when the
euro was falling toward 10-year lows against the dollar, increasing
FedEx's buying power. At the same time, the European economy was
starting to show signs of growth again, FedEx Chief Executive
Frederick Smith said on the call.
The acquisition would give FedEx a bigger presence in the
growing but tough-to-crack European delivery market, where the
challenges include often- inaccessible apartment buildings in dense
urban areas and where each country has its own rules and
competitors.
UPS declined to comment on its competitor's move, citing company
policy, but a spokesman said it constantly evaluates the
marketplace for potential acquisitions and that it recently said it
would be investing more than $1 billion to expand its European
business organically. In 2012 it acquired Kiala, a Europe-based
network of thousands of package pickup points at kiosks and other
small stores.
When European regulators blocked UPS's acquisition of TNT two
years ago, they said one of the reasons was that FedEx didn't exert
much competitive pressure on the other three players in the market
for international air-and-ground small package deliveries in
Europe. That would seem to indicate that the latest merger is
unlikely to face trouble in Brussels, antitrust experts said.
"FedEx was deemed a weaker competitor by the [European
Commission] because of the lack of density and scale of its
European network," said Mario Mariniello, a former EU antitrust
official who now works for Brussels-based think tank Bruegel.
The FedEx-TNT merger "could have an easier" ride in the EU
because combining the two "may not eliminate a strong competitive
force in the market," said Mr. Mariniello. Regulators might also
look favorably on positive effects on the network that could be
passed on to customers in the form of better delivery services, he
said.
Still, regulators might demand asset sales in narrowly defined
markets in which they deemed that TNT and FedEx competed strongly
against one another, he said. FedEx said Tuesday it would divest
TNT's airline.
FedEx has made a series of smaller acquisitions in recent
months. In January, the delivery giant paid $1.4 billion for Genco
Distribution Systems Inc., a third-party logistics provider that
specializes in the product-returns business. And in December, it
said it acquired Bongo International, a provider of services for
international e-commerce orders and shipments.
FedEx said that its deal to acquire TNT was approved by the
Dutch company's board, and that the purchase price of EUR8 ($8.74)
a share represents a premium of 33% to TNT's share price on April
2. Shares in TNT jumped 30% to EUR7.80 on the news, making it one
of the biggest gainers in Europe.
FedEx executives said on the analyst call that the acquisition
won't affect earnings until its fiscal year 2018, after which it
"will be very accretive."
Dutch mail company PostNL NV, which has a 14.7% stake in TNT,
said it supports the offer.
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