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TNT Shifts Strategy to Spin Off Express Division

TNT CEO Peter Bakker
Chief Executive Officer Peter Bakker will step down when the separation is complete. Photographer Rupert Hartley/Bloomberg

TNT NV, Europe’s second-biggest express-delivery company, announced plans to reverse course and spin off the business while retaining the smaller mail division.

TNT rose 8 percent in Amsterdam trading, the biggest jump in more than two years, after saying current investors will be offered new stock in the express unit next year. The postal operation will retain a 29.9 percent stake until some financial questions are resolved, Hoofddorp, Netherland’s based TNT said in a statement.

Analysts estimated earlier this year that the express unit was worth about 6.25 billion euros ($8.3 billion) following investor speculation that United Parcel Service Inc. or FedEx Corp. may seek to buy the division. TNT, which had a monopoly on letter deliveries in the Netherlands until last year, started an internal separation of the express and postal businesses in April with the aim of selling the latter.

“This is quite an important change of strategy,” Andre Mulder, an analyst at Kepler Capital Markets, said today. “It’s harder to sell the mail unit because of the strikes and influence from the government. You have a bigger chance selling the express division.”

TNT rose 1.51 euros to 20.35 euros at the 5:30 p.m. market close, the largest gain since Nov. 24, 2008. That narrowed the stock’s decline this year to 5.4 percent, valuing the company at 7.7 billion euros.

Mail Unit’s Sales

Mail operations contributed 41 percent of TNT’s annual sales of 10.4 billion euros in 2009. The unit accounted for 73 percent of group operating profit of 648 million euros last year. That compares with a record $8.5 billion loss following a 3.5 percent drop in mail volume at the U.S. Postal Service in the year through Sept. 30.

“We’re starting a new chapter,” Chief Executive Officer Peter Bakker told journalists in London today. “We’ve concluded the synergies between the two businesses were limited.”

Current shareholders of TNT will be offered stock in the new express company after they agree on the transaction at a meeting in May. Separate listings will follow “around June 1,” Bakker said. The express company will wield the TNT brand, while the mail operation will adopt another name that has yet to be decided, he said.

Any sale of the express unit to a third party would depend on shareholders’ agreeing to the split-up arrangements first, said Ernst Moeksis, a TNT spokesman.

Bakker, 49, will step down when the separation is complete, TNT said. The mail service will be run by Harry Koorstra, while Marie-Christine Lombard will oversee the express company.

CEO’s Strategy

Bakker, who took his current post nine years ago, sold TNT’s logistics operations in 2005 and divested the freight- management division a year later. Bakker returned part of the proceeds to investors through share buyback programs while also investing in the express division’s network growth and reorganizing mail operations. The CEO declined today to say what he plans to do when he leaves TNT.

“Lately, he lost some of his stardom,” said Corne van Zeijl, who helps manage about 40 billion euros at SNS Asset Management, including TNT stock. “If, five years ago, you had asked 10 investors who the best Dutch CEO is, half of them would have said: Peter Bakker.”

The mail operator will retain the holding in the express business to prevent a negative-equity valuation of 900 million euros that would result if the companies separated fully, TNT said. The companies must also work out financing of debt and Dutch pension-fund deficits under the new structure, it said. The postal company will seek to sell the stake “as soon as possible,” Bakker said.

‘Growth’ Stock

The express company “will be a growth stock,” Bakker said. “Mail will be a value stock with a focus on solid dividend streams for investors.”

TNT traces its roots back to the founding of the Netherlands’ postal service in 1752. Increased competition in the domestic market has eroded prices while the volume of letters handled has fallen as customers increasingly use e-mail. Postal workers went on strike in November to protest against plans to cut 11,000 jobs.

Market Share

Speculation about a bid for TNT by FedEx or UPS, the largest U.S. package shippers, has repeatedly surfaced for years as a way for the companies to expand in Europe. TNT controls 18 percent of express deliveries on the continent.

“UPS will not discuss rumors or speculation about mergers or acquisitions,” said Norman Black, a spokesman for the Atlanta-based company.

“As a matter of policy, we do not comment regarding corporate development matters,” said Jess Bunn, a spokesman for Memphis, Tennessee-based FedEx.

The TNT postal company will focus on countries where it’s already active, including Germany and the U.K., Bakker said. The CEO said he was “positively surprised” by comments from the U.K. government that it’s ready to sell the state-owned Royal Mail Group Ltd., which TNT had considered trying to buy earlier.

“If it comes up as an opportunity again, we will look at it again,” Bakker said.

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