UPS Said to Weigh Network Sharing to Rescue TNT Purchase

United Parcel Service Inc. (UPS) may offer to transport goods for rivals to salvage a 5.16 billion-euro ($6.67 billion) purchase of TNT Express NV (TNTE) amid European Union antitrust concerns, three people familiar with the plans said.

UPS is considering guarantees allowing others to send items at fixed prices using its network of trucks, planes and warehouses in order to maintain a sufficient number of European competitors in overnight express shipments, the main concern of EU regulators, said the people, who asked not to be identified because the talks are private.

UPS is also looking at asset sales as part of a package of solutions it may present to regulators as soon as tomorrow, the people said. Anton van der Lande, a spokesman in Brussels for Atlanta-based UPS, declined to comment on any possible remedies.

UPS’s takeover of TNT faces growing investor skepticism, with the Dutch firm’s stock trading at a 21 percent discount to the 9.50-euro-a-share offer price, as the world’s largest package-delivery company struggles to win EU approval. Since announcing the purchase on March 19, UPS has twice pushed back the target date to complete the biggest acquisition in its 105- year history as the regulatory review continues.

Regulators will look at whether the access remedy would be effective and something they could monitor, said Bruce Kilpatrick, a London-based lawyer with Addleshaw Goddard. They would also seek views from rivals on how the network access would work.

“For distribution networks, the issue is that it is not just about price -- it’s also about service levels and terms of access, so the remedy becomes significantly more complex,” he said in an e-mail.

TNT Declines

TNT declined 13 cents, or 1.7 percent, to 7.47 euros at the close of trading today in Amsterdam. The stock has climbed 29 percent this year, valuing the company at 4.06 billion euros. UPS rose 0.8 percent to $72.71 at the close in New York.

“It suggests that all their other attempts to broaden the EU’s view of the market haven’t worked,” said Damian Brewer, a London-based RBC Capital Markets analyst who rates TNT underperform. “The second thing is what level is the fixed price set at? Who agrees what the price is set at and how long for? That means you can get into the territory of being a price- regulated utility.”

UPS’s bid requires “substantial remedies” to eliminate antitrust concerns, EU Competition Commissioner Joaquin Almunia said in a Nov. 2 speech. Regulators sent formal objections to the companies last month listing possible issues with its bid for TNT, which would double UPS’s size in Europe.

Asset Sales

UPS has been focusing on La Poste SA’s DPD parcel distribution unit as the preferred buyer for its EU assets, one of the people said. The aim is that by offering sufficient assets as well as a network sharing agreement, DPD would be considered a strong competitor by the EU, the person said.

UPS has also held informal talks with the Royal Mail Group Ltd.’s GLS subsidiary as well as FedEx Corp. (FDX), the person said. Royal Mail, La Poste and FedEx representatives declined to comment on any possible talks.

FedEx will probably not purchase assets from the combined company at this point because it wants the deal to be blocked, three people said. FedEx may reconsider buying assets if it believes UPS has found other viable buyers and the deal would win EU approval, they said.

‘Helping FedEx’

“I had expected them to go pretty far, but not as far as helping FedEx to create a stepping stone to expand in Europe,” said Marcel Achterberg, an Amsterdam-based Petercam analyst who recommends buying TNT stock. “If they’re willing to do that, the risk of them walking away because of the remedies is smaller than expected, so I would say it’s a positive.”

When UPS and TNT originally agreed to the takeover, the company estimated it may need to sell TNT’s international small parcel business, which has sales of about 900 million euros and is largely present in Europe, one of the people said. UPS’s offer to the EU this week may differ from the initial estimates, said the person.

When UPS and TNT originally agreed to the takeover, the company estimated it may need to sell TNT’s international small parcel business, which has sales of about 900 million euros and is largely present in Europe, one of the people said. UPS may have since tweaked the asset offer as the EU’s objections exceeded the company’s expectations, said the person.

Regulators told UPS last month that its bid for TNT would remove one of its few serious competitors in the European delivery services market, a person familiar with the regulators’ complaint said at the time.

TNT and Deutsche Post AG (DPW)’s DHL, the market-share leader, are UPS’s main competitors for next-day express deliveries within Europe, according to the European Commission’s antitrust objections, said the person, who saw the confidential charge sheet on the matter.

Deutsche Post CEO Frank Appel said in a Frankfurt interview he was unable to comment until he had seen the full proposals.

To contact the reporters on this story: Aaron Kirchfeld in London at akirchfeld@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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