The “highly conditional” bid of 9 euros a share, 42 percent more than yesterday’s closing price in Amsterdam, was turned down by TNT’s supervisory and executive boards, the Hoofddorp, Netherlands-based company said in a statement. UPS confirmed that discussions were continuing.
“This is a low enough offer that UPS could write a check for it in a heartbeat,” said Kevin Sterling, a BB&T Capital Markets analyst in Richmond, Virginia. “The euro keeps weakening and TNT’s position keeps weakening, so TNT isn’t exactly negotiating from a position of strength here.”
Acquiring TNT would extend the European reach of Atlanta- based UPS, which is already the world’s largest package-delivery company. TNT was spun off from Dutch postal operator TNT NV in May, and the former parent, now named PostNL NV, (TNTE) retains 29.9 percent of the company, according to data compiled by Bloomberg.
The UPS bid valued TNT at 1.04 times total assets, compared with a median multiple of 0.58 in 33 acquisitions of transportation services companies in Western Europe in the past 10 years, Bloomberg analysis shows. The 42 percent premium compares with an average of 15 percent in more than 270 deals in the same period.
A bid by UPS or FedEx Corp. (FDX) has been the subject of speculation for years as the U.S. companies study expansion in Europe, and TNT’s American depositary receipts jumped 55 percent, the most since the spinoff, to $12.57 yesterday in New York.
UPS was unchanged at $76.76, while FedEx, the operator of the world’s largest cargo airline and No. 2 in package deliveries behind UPS, slid 2.1 percent to $92.99.
TNT rose 2.6 percent to 6.34 euros yesterday in Amsterdam, before the talks were disclosed.
The announcement of the offer to TNT and ongoing talks about a deal spurred Standard & Poor’s to put UPS, including the company’s AA- corporate rating, on “Creditwatch” for a possible downgrade.
“We believe the transaction would strengthen UPS’s market position, especially in Europe,” S&P said in a statement. “However, we believe that UPS’s credit metrics have limited room for deterioration at the current rating.”
For TNT, UPS’s offer reflects the European company’s undervaluation after the spinoff, creating an opening for “one of the most opportunistic bids of the decade,” said James Rasteh, president of New York-based White Eagle Partners LLC, which he said holds a TNT stake of less than 1 percent.
Fair value for the stock would be more than 15 euros a share, Rasteh said in an interview.
Spokesmen for PostNL, TNT’s largest investor, and Jana Partners, the third-largest, declined to comment.
TNT posted a net loss of 97 million euros for the first nine months of 2011 compared with a profit of 62 million euros a year earlier. TNT is in the midst of a 50 million-euro program to reduce “indirect costs” and plans to report full-year earnings on Feb. 21.
The company cut its 2011 target operating margin for Europe, the Middle East and Africa to 8 percent to 9 percent in October from an earlier target of 9 percent or more. UPS hasn’t posted an annual loss since going public in 1999 and ended the third quarter with $4.13 billion in cash and near-cash items.
Feb. 11 Offer
UPS’s offer, made Feb. 11, was revised and increased following discussions with TNT, the company said in a statement. Peggy Gardner, a UPS spokeswoman, declined to comment beyond the statement.
“It absolutely makes sense for UPS to consider a ‘low-ball bid’ for TNT Express, especially with the euro down versus the dollar,” said Jeff Kauffman, an analyst at Sterne Agee & Leach in New York.
Would-be suitors are unlikely to pay a price in the mid- teens right now, Kauffman said. He recommends buying the shares, as does BB&T’s Sterling.
FedEx would benefit more from a purchase of TNT because its Europe market share is smaller, according to Lee Klaskow, a Bloomberg Industries analyst in Skillman, New Jersey.
Jess Bunn, a spokesman for Memphis, Tennessee-based FedEx, declined to comment, citing a company policy against discussing “corporate development matters.”
UPS completed the purchase this week of Brussels-based delivery firm Kiala to bolster operations in Belgium, France, the Netherlands, Spain and Luxembourg, and the company has done several so-called bolt-on acquisitions in recent years, said Thompson Davis’s Campbell, who recommends buying UPS and FedEx.
“UPS is in Europe for the long term, and it would take them years to duplicate what TNT already has,” Campbell said. “In the meantime TNT isn’t going to go away as a competitor and would be fighting back.”