Traders are betting TNT Express NV is the most likely takeover target in Europe to get a higher offer, even after spurning the industry’s richest proposal from United Parcel Service Inc. (UPS)
Shares of TNT (TNTE), Europe’s second-largest package-delivery company, ended yesterday almost 10 percent above the unsolicited bid of 9 euros a share, more than any other pending deal over $1 billion in the region, according to data compiled by Bloomberg. The 4.9 billion-euro ($6.5 billion) offer valued Hoofddorp, Netherlands-based TNT at 12.7 times earnings before interest, taxes, depreciation and amortization, 60 percent higher than the median for comparable acquisitions in the U.S. or Europe.
While the 43 percent premium that UPS proposed to pay is also the biggest for any transportation services deal in Europe, Dahlman Rose & Co. and Tullett Prebon Plc say TNT could command more because it would let UPS more than double its share of express deliveries in the region to rival Deutsche Post AG (DPW)’s DHL. As the biggest remaining independent package-delivery company in Europe, TNT may also attract FedEx Corp. (FDX) and get at least 11 euros a share in a takeover, Stifel Nicolaus & Co. said.
“It’s prized in the context that this is the end game in terms of acquisitions” for European delivery services, Sachin Shah, a Jersey City, New Jersey-based merger arbitrage strategist at Tullett Prebon, said in a telephone interview. “UPS knows that they have to up the offer.”
Ernst Moeksis, a spokesman for TNT, declined to comment on whether it had been approached about a competing offer, received a higher bid from UPS or at what price the company would be willing to sell itself.
Tom Johnson, a spokesman for Atlanta-based UPS, the world’s largest package-delivery company, declined to comment on whether it was considering increasing its proposal.
Founded in Australia as Thomas Nationwide Transport in 1946, TNT was spun off in May from the Dutch postal operator, which is now named PostNL and retains 29.9 percent of the company, according to data compiled by Bloomberg.
After reaching 10 euros a share that month, TNT tumbled as much as 54 percent to a low of 4.64 euros as sales and per-share earnings fell short of analysts’ estimates in both the second quarter and third quarter, the data show.
The stock then surged 60 percent on Feb. 20 after TNT said in a statement that the supervisory and executive boards turned down UPS’s “conditional” offer and that it was continuing to negotiate a sale.
UPS, which confirmed that discussions were continuing, said it had revised and increased its offer to the current bid of 9 euros a share on Feb. 11 after talks with TNT.
The proposal valued TNT at 12.7 times its Ebitda (TNTE) of 390 million euros in the past year, or at least 27 percent higher than any other comparable deal in the transportation services industry in the U.S. or Europe, data compiled by Bloomberg show.
While the premium to TNT’s average price in the 20 days prior to the announcement was also the biggest, the shares ended at 9.886 euros yesterday, or 9.8 percent above UPS’s bid. The gap was almost three times as wide as the next billion-dollar European deal, indicating that merger arbitragers anticipate a higher bid will emerge, the data show.
“I fully expect another offer to be made,” Jason Seidl, an analyst at Dahlman in New York, said in a telephone interview.
After TNT reported a loss of 270 million euros last year as trade between Asia and Europe slowed and as the company wrote down the value of its Brazilian operations, analysts estimate that it will post a profit this year and then boost 2013 earnings at more than double the pace of either UPS or FedEx, according to data compiled by Bloomberg.
Buying TNT would increase UPS’s share of European express deliveries to about 17.3 percent from 7.7 percent, according to data compiled by research firm Transport Intelligence. Bonn- based Deutsche Post’s DHL unit has 17.6 percent of the market. FedEx, UPS’s main competitor globally, has a 3.3 percent share in Europe, the data show.
UPS would also gain an express-delivery business within China from its acquisition of TNT, according to Deutsche Bank AG. Tullett Prebon’s Shah says combining the two companies could save as much as 400 million euros in costs.
“It is a very strategic asset and I think it will command a premium as a result of that,” Benjamin Hartford, an analyst at Milwaukee-based Robert W. Baird & Co., said in a telephone interview. “Can they go higher? Absolutely.”
FedEx may also jump in with a bid to cut into UPS’s advantage in Europe and to bolster its own lead in Asia, where TNT gets almost a quarter of its sales, according to David Ross, a Baltimore-based analyst at Stifel Nicolaus.
Ross said UPS could pay 11 euros a share for TNT and still add to earnings. A bidding contest could push the price as high as 15 euros, he said.
“It could be an offensive move for FedEx as much as it’s a defensive move to go in and try to thwart a UPS takeover,” Lee Klaskow, a Bloomberg Industries analyst in Skillman, New Jersey, said in a telephone interview. “It doesn’t seem like the 9-euro offer is something that will stand.”
Jess Bunn, a spokesman for Memphis, Tennessee-based FedEx, said it doesn’t comment on “corporate development matters.”
One reason FedEx could be dissuaded from bidding against UPS is that it has less than half the $4.1 billion in cash that its larger competitor holds, according to Justin Yagerman, an analyst at Deutsche Bank in New York. Instead, FedEx may pursue smaller deals to build its business in the region, he said.
“FedEx is likely not to bid -- it makes a lot more sense for UPS to buy this company,” Yagerman said in a telephone interview. “UPS will be able to do this without much of a premium” to its 9 euro-a-share offer, he said.
Relegated and Marginalized
James Rasteh, president of New York-based White Eagle Partners LLC, said that TNT can probably get a bigger windfall for shareholders because FedEx can’t afford to let UPS acquire TNT without making it pay a higher price.
“FedEx needs an asset like this,” Rasteh, who owns TNT stock, said in a telephone interview. “Without it, they are going to be relegated to a very distant third position and get increasingly marginalized.”