UPS-TNT Deal is Dropped

Alex Webb & Robert Wall
January 14, 2013

United Parcel Service Inc. (UPS), the world’s biggest package-delivery company, scrapped a 5.16 billion-euro ($6.9 billion) bid for TNT Express NV (TNTE) after European regulators moved to block the deal.

Antitrust officials told the companies last week that the latest remedies were insufficient, according to TNT, which fell as much as 51 percent in Amsterdam. TNT will get a 200 million- euro termination fee from UPS following formal rejection of the combination, the biggest to fail in Europe since BAE Systems Plc and EADS called off a merger in October.

“I’m surprised that the deal is not going through,” said Philip Scholte, an analyst at Rabobank International in Utrecht. “There’s quite a bit of competition in the express market and still the European Union continues to be very strict.”

EU Competition Commissioner Joaquin Almunia will reach a decision on the case by Feb. 5, spokesman Antoine Colombani said. The rejection of takeovers is rare, and since taking up his role in 2010, Almunia has blocked only the $9.5 billion takeover of NYSE Euronext by Deutsche Boerse AG and a bid by Aegean Airlines SA to merge with Olympic Air SA.

TNT Express fell 43 percent to 4.70 euros at 5:01 p.m. local time, reducing the Hoofddorp, Netherlands-based company’s market value to 2.55 billion euros. Dutch postal operator PostNL NV (PNL), TNT’s biggest shareholder, dropped as much as 40 percent.

UPS climbed 1.1 percent to $78.79 at 10:57 a.m. in New York and earlier touched its highest intraday price since July 20.

Biggest Deal

UPS Chief Executive Officer Scott Davis said he was “extremely disappointed” by the failure of a deal that would have been the biggest in his company’s history, giving it a European market share similar to Deutsche Post AG (DPW)’s DHL, the region’s top express operator.

While UPS had revised proposed concessions twice to include the sale of assets and the offering of air-network access to rivals, the European Commission has been seeking to create a player of a similar size to TNT to fill the void it would leave, Almunia told reporters last week.

The deal will be formally terminated once the “inevitable” prohibition ruling has been received, TNT said. The Dutch company added that it “regrets this situation, having believed the merger was feasible and beneficial for all stakeholders.”

UPS had agreed to buy TNT for 9.50 euros a share on March 19 last year after sweetening its bid from the 9 euros turned down the previous month. TNT stock closed at 6.34 euros on Feb. 17, the last day of trading before the talks were made public.

Debt Free

“This is critical for shareholders but not critical for TNT itself,” said Damian Brewer, a London-based RBC Capital Markets analyst with an “underperform” rating on TNT. “The company doesn’t have any debt so it’s master of its own destiny.”

TNT spokesman Cyrille Gibot said that the company, spun off from PostNL in 2011, will most likely use the payout from UPS to strengthen its balance sheet rather than to issue a special dividend to shareholders.

An agreement to sell TNT Airways and Pan Air Lineas Areas SA to Ireland’s ASL Aviation Group Ltd. was conditional on the closing of the UPS takeover, and will also be terminated, he said. ASL declined to comment on the accord today.

The Dutch company will need to take decisions about the future of some non-European operations, such as TNT China, said Andre Mulder, an analyst at Kepler Capital Markets in Amsterdam with a “reduce” recommendation on the stock.

‘Monetize Stake’

Amsterdam-based PostNL, still TNT’s biggest investor with a 30 percent stake, may renew attempts to sell the company in the future, CEO Herna Verhagen said in an e-mailed statement. The stock traded 36 percent lower at 1.88 euros.

“We expect that we will monetize the stake over the medium term to create better value for shareholders, after we have seen stability return to TNT Express,” Verhagen said.

FNV Bondgenoten labor union representative Egon Groen said he had “mixed feelings” about the collapse of the TNT takeover.

“On the one hand there’s finally some clarity for the employees,” he said by telephone. “On the other, the takeover wasn’t out of luxury. They’d always said that this was the best option for TNT, so now what is it going to do?”

FedEx Corp. (FDX), the second-largest package-delivery company, was briefly regarded as a potential suitor for TNT after the rejection of UPS’s initial offer, and the Memphis, Tennessee- based business’s interest may now be reignited, Mulder said.

“FedEx cannot be fully excluded as a white knight,” he said. “The company would stand a much better chance of getting a takeover approved because of the small number of overlaps.”

BAE, Honeywell

The UPS-TNT collapse is Europe’s highest profile failure since a proposed $45 billion merger between European Aeronautic, Defence & Space Co., parent of Airbus SAS, and BAE, the region’s biggest weapons maker, was terminated on Oct. 10 following opposition from the German government. Competition lawyers had said the deal would probably have been cleared by regulators.

Among major transactions previously blocked by the European Commission was the proposed $47 billion acquisition of Honeywell Inc. by General Electric Co. in 2001. The rejection stoked a clash with U.S. regulators and the then treasury secretary, Paul O’Neill, who described the decision as “off the wall.”

Looming decisions include one regarding a bid from Ryanair Holdings Plc (RYA) for Aer Lingus (AERL) Group Plc. Almunia said today in Bruges, Belgium, that the Irish discount carrier will submit new remedies after the ones proposed met with objections.

Morgan Stanley (MS), UBS AG (UBSN) and Bank of America’s Merrill Lynch unit were financial advisers for UPS. TNT Express worked with Goldman Sachs Group Inc. (GS) and Lazard Ltd. (LAZ) advised the Dutch company’s supervisory board. Freshfields Bruckhaus Deringer LLP was UPS’s legal adviser and Allen & Overy LLP worked with TNT.

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