UPS’s Failed TNT Offer Wipes Out $55 Million in Bank FeesChris V. Nicholson and Aaron Kirchfeld
Investment banks advising United Parcel Service Inc. and TNT Express NV on their blocked deal will miss about $55 million they were set to earn on the deal, which collapsed almost a year after the offer was first made.
UPS advisers Morgan Stanley, UBS AG, and Bank of America Corp. were set to reap as much as $30 million in fees if the company completed its acquisition of the Dutch parcel delivery service TNT, according to New York-based research firm Freeman & Co. Sellside advisers including Goldman Sachs Group Inc. and Lazard Ltd. were slated to earn as much as $25 million.
“It’s just more bad news for the banks,” said Peter Hahn, a lecturer at Cass Business School in London and a former managing director at Citigroup Inc. “It also suggests a greater amount of regulatory scrutiny on consolidation strategies.”
The banks will have to settle for about 10 percent of those fees, or about $5.5 million altogether, after the European Commission told UPS and TNT that it would block the deal. The 5.16 billion-euro ($6.9 billion) acquisition was set to be the largest ever for UPS, as well as the 14th-largest cross-border deal announced last year, according to data compiled by Bloomberg. Now it joins the ranks of major deals that have foundered on demands made by the commission.
The commission told UPS on Jan. 11 that it was planning to oppose the TNT takeover and the U.S. firm decided soon after to pull the plug, according to a person familiar with the matter.
UPS, based in Atlanta, didn’t believe further concessions would win over the EU after offering remedies in more than a dozen countries and access to its air network, the person said.
“The merger between UPS and TNT had an unrealistic timeline given the size and complexity of the transaction,” Helane Becker, an analyst at Dahlman Rose & Co. in New York, wrote yesterday in a research note. “The EC continually stated it had concerns about the competition of overnight delivery parcels in Europe.”
Morgan Stanley’s team included James Runde, who has been at the bank for about 39 years and helped it win the lead role on UPS’s $5.5 billion share sale in 1999. Mark Eichorn, the global co-head of investment banking, and Peter Krowinkel, who oversees M&A for Belgium, the Netherlands and Luxembourg, led the group.
Bank of America’s team included Justin Anstee, head of European transport and services. UPS also got advice from UBS AG’s Charles Otton, a managing director on the Swiss bank’s transport team, and James Robertson, a managing director in its investment bank unit in the U.K.
TNT worked with Goldman Sachs Group Inc.’s Gordon Dyal and Richard Govers, while Wouter Han, head of Lazard Ltd.’s Benelux business, advised TNT’s supervisory board. Deutsche Bank AG’s Nicholas Aperghis advised TNT’s largest shareholder, PostNL NV, which owns a 30 percent stake.
The last time the European Union vetoed a major deal was in February last year, when it ended Deutsche Boerse AG and NYSE Euronext’s $9.5 billion plan to create the world’s biggest exchange after concluding the merger would hurt competition. In January 2011, the EU blocked the plans of Aegean Airlines SA to merge with unprofitable Olympic Air SA in Greece. Ryanair Holdings Plc will make further concessions to rescue its bid for Aer Lingus Group Plc, the EU said yesterday.
In the parcel-services industry, the commission has been seeking to create a player in the market of a similar size to fill the void left by TNT, the EU’s antitrust chief Joaquin Almunia told reporters Jan. 11.
UPS focused on selling European assets to La Poste SA’s DPD parcel-distribution unit as it tried to convince the EU it would create a viable competitor, a person familiar with the matter said.
Freshfields Bruckhaus Deringer LLP served as legal adviser to UPS while Allen & Overy LLP advised TNT. UPS will pay TNT a termination fee of 200 million euros once the commission officially prohibits the deal. Sellside advisers may receive a portion of that payment in addition to their normal fees, Freeman said.
Global mergers and acquisitions fell 7 percent to $2.24 trillion last year, the lowest level since 2010, according to data compiled by Bloomberg.
UPS and TNT shares have drawn arbitrage interest since the transaction was first announced in February, and the deal’s collapse may have a major impact on some hedge funds’ performance.
TNT shares fell 51 percent after the companies said this morning the deal would be blocked. TNT’s market capitalization, which was 4.5 billion euros at the market close on Friday, lost as much as 2.3 billion euros in value yesterday in Europe, falling as low as 4.05 euros in Amsterdam yesterday. The shares closed at 8.25 euro on Friday, compared to UPS’s bid of 9.50 euros per share. TNT shares closed at 4.84 euros yesterday.
Leverage among hedge funds that speculate on rising and falling shares climbed to the highest level to start any year since at least 2004, according to data compiled by Morgan Stanley. Margin debt at New York Stock Exchange firms rose in November to the most since February 2008, data from NYSE Euronext show. UPS is listed on the NYSE, and TNT on Euronext Amsterdam.
“It’s a big blow to TNT,” said Joel Ray, a Wiltshire, England-based Transport Intelligence analyst. “Are they going to retrench and become a purely European road operator? The air business is in decline and is the most expensive part of the business. If that is the case, then the EU have effectively reduced competition.”