UPS Offers Rivals Air Cargo Space in Push for TNT Deal
United Parcel Service Inc. (UPS), the world’s biggest package-delivery company, offered concessions such as granting rivals access to air networks as it seeks approval from European Union regulators for its 5.16 billion-euro ($6.7 billion) purchase of TNT Express NV. (TNTE)
The proposed remedies also include the sale of some business units, the companies said in a joint statement. The deadline for the investigation by the European Commission, the bloc’s regulatory arm, has now been extended to Feb. 5.
The submission seeks to “address the EC’s concerns regarding the competitive effects of the intended merger on the international express small package market in Europe,” UPS and TNT said in the statement.
UPS’s takeover of TNT has faced growing investor skepticism, with the Dutch firm’s stock trading at a 20 percent discount to the 9.50-euro-a-share offer price, as the world’s largest package-delivery company struggles to win EU approval for a deal that would double its size in Europe. 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.
“Clearly they have not been able to change the Commission’s market definition, so the next step is to do some asset sales,” said Beat Keiser, a Zurich-based Credit Agricole analyst who rates TNT underperform. “People will probably take it as a short-term positive, but the risks remain quite high.”
UPS’s bid for TNT 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 the bid. The EU told UPS that the acquisition would remove one of its few serious rivals in the European delivery services market, according to a person familiar with the regulators’ complaint.
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 sent to the companies.
The sharing of air networks will probably only benefit express operators who need to guarantee fast delivery, not parcel delivery companies like La Poste SA’s DPD unit or Royal Mail Group Ltd.’s GLS, Amsterdam-based Kepler Capital Markets analyst Andre Mulder said in an e-mail.
“We doubt whether that is sufficient to please the EC,” said Mulder, who rates TNT reduce. “We remain negative on the chance of success.”
UPS’s offer may be sent to rivals and customers in the coming days for comments on whether it would resolve antitrust issues. The feedback from that so-called market test would help the EU determine whether to accept the proposal or seek further concessions from the companies.
Shares in TNT gained as much as 1.6 percent to 7.69 euros, and were little changed as of 12:02 p.m. in Amsterdam trading. The stock has climbed 31 percent this year, valuing the company at 4.1 billion euros.
The buyer of the divested businesses must ensure their “long-term viability” and “continuity of customer service,” the companies said in today’s statement.
UPS may give rivals access to its delivery trucks, aircraft and warehouses and allow them to ship goods at fixed prices, as well as asset sales, three people familiar with the plans said earlier this week. The goal is to create a new, sizable European competitor to maintain a sufficient number of companies in overnight express shipments, they said.
The European Commission’s press office confirmed that UPS and TNT had made an offer yesterday and that the deadline for the EU review was now Feb. 5.