July 14 (Bloomberg) -- TNT NV, Europe's second-biggest express-delivery service, rose by a record 32 percent in Amsterdam trading after the Financial Times reported that U.S. competitor FedEx Corp. is in talks to buy the Dutch company.

TNT advanced as much as 5.94 euros to 24.45 euros, the biggest gain since the Hoofddorp, Netherlands-based company's June 1998 initial public offering, and was up 29 percent as of 3:31 p.m. The increase pared the stock's decline this year to 16 percent, valuing TNT at 9.02 billion euros ($14.3 billion).

FedEx Corp., the second-largest U.S. package-shipping company, is in preliminary talks to buy TNT, the Financial Times said July 12. Rising fuel costs and an economic decline revived merger discussion between FedEx and TNT, the U.K. newspaper said, without citing anyone. Buying the Dutch operator would help FedEx expand its European delivery network and step up competition in the region with Atlanta-based United Parcel Service Inc. and the DHL Express business owned by Germany's Deutsche Post AG.

``It would make a lot of sense strategically,'' said Axel Funhoff, an analyst at ING in Brussels with a ``buy'' recommendation on the stock. ``FedEx has no domestic operations in Europe, only an international business, meaning they're no significant player. The European business is growing much faster organically than the U.S. market and has significant volumes, so it would make sense to step up the presence in Europe.''

Ratings Upgraded

Merrill Lynch today upgraded its recommendation for TNT shares to ``buy'' from ``neutral,'' saying the Dutch company's shares have ``underperformed'' and are not ``discounting a potential takeover.'' Broker CA Cheuvreux raised its rating on TNT shares to ``outperform'' from ``underperform.''

Pieter Schaffels, a spokesman for TNT, and Jess Bunn of Memphis, Tennessee-based FedEx both declined to comment on the Financial Times report when contacted by Bloomberg News July 12.

FedEx posted its first quarterly loss in 11 years last month and forecast earnings that fell short of analysts' estimates as spending on fuel rises and a slowing U.S. economy curbs demand. Worsening market conditions are putting more pressure on FedEx to seek growth abroad through acquisitions, Funhoff of ING said.

A takeover of TNT would equip FedEx with a full European air and road-delivery network, including an air hub in Liege, Belgium, and a trucking center in Arnhem, Netherlands. TNT, which posted 2007 revenue of 11 billion euros, is also the Netherlands' biggest letter-delivery service. European countries where the company has mail operations include Germany and the U.K.

Express-Delivery Unit

TNT said last month that its express-delivery business isn't being hurt by surging fuel prices and a slowing U.S. economy. The company has raised fuel surcharges for customers and limited spending on jet kerosene by transporting as much as possible by road rather than air. It also has a small foothold in the U.S., which makes up only 2 percent to 3 percent of total express- delivery volumes.

FedEx said June 3 that it plans to expand a freight hub at Paris Charles de Gaulle airport to meet growing demand for express deliveries in Europe. Paris is FedEx's biggest air- freight hub outside the U.S. and serves as the company's main sorting facility for Europe.

The FedEx speculation comes after Bonn-based Deutsche Post, Europe's biggest mail carrier and the region's largest express- delivery service by revenue, teamed up in May with UPS, which ranks first in the U.S. package delivery business, to help restore earnings at DHL Express's unprofitable U.S. business.

A combined TNT and FedEx would claim 23 percent of the European express-delivery market, compared with 24 percent at DHL, according to estimates by Damian Brewer, an analyst at JPMorgan Chase & Co. in London with a ``neutral'' rating on TNT.

Last year, FedEx had sales of just under $38 billion, boosted by shipping goods such as music CDs and computer games from Sony Corp., the world's second-largest consumer-electronics maker, and colorful plastic clogs with holes made by Crocs Inc.

To contact the reporter on this story: Jann Bettinga in Frankfurt at jbettinga@bloomberg.net.

Last Updated: July 14, 2008 09:34 EDT