How FedEx ‘Weakness’ May Win EU Backing for $4.8 Billion TNT Bid

European Union regulators said in 2013 that FedEx Corp. was too weak to compete against a merged United Parcel Service Inc. and TNT Express NV. This disadvantage may become an asset as FedEx seeks approval to buy TNT.

The European Commission blocked UPS’s bid to buy TNT two years ago after it identified several countries where the company would face a single rival, said David Anderson, a lawyer at Berwin Leighton Paisner LLP in Brussels. FedEx’s frailty in these markets was the “main stumbling block.”

“FedEx’s perceived weakness is now likely to be a strength in getting this new deal through,” Anderson said.

The agreement to acquire the Dutch company for $4.8 billion, would allow Memphis, Tennessee-based FedEx, currently No. 4 in the European market, to add vehicles, staff and customers. Those assets may help FedEx cut costs and expand its reach to take on Deutsche Post AG’s DHL and UPS.

The UPS deal fell through because the companies failed to find a suitable buyer for units of the Dutch company in 17 countries to ensure competition for delivery services wouldn’t be crushed. FedEx was “the only possible suitable purchaser” yet it refused to buy any of the TNT assets or make an alternative bid for the entire company, the EU said in 2013.

‘Confident’

FedEx and TNT management said Tuesday they’re “confident that antitrust concerns, if any, can be addressed adequately in a timely fashion,” and that they expect to conclude the transaction in the first half of 2016. Part of the reason for the drawn-out process is because they need approval from watchdogs from countries including the U.S. and Brazil.

Still, both sides maintain that the transaction is easier to pull off than a combination with UPS, because there are fewer overlaps. Hoofddorp, Netherlands-based TNT has started looking for buyers for its air-freight operations, with a fleet of about 50 aircraft, the company said after the deal was announced.

The recent review of the market means FedEx will be able to get a quicker answer from EU regulators, rather than the more than seven-month process UPS endured, said Louisa Penny, an antitrust lawyer at Taylor Wessing LLP in London.

“The commission will therefore be well aware of the issues that may well arise,” she said in an e-mail. “The parties will argue that as FedEx does not provide the same comprehensive package of services as TNT, the businesses are in fact complementary. If so, this acquisition could arguably be pro-competitive, an argument which may well be backed up by the previous decision.”

In Europe, FedEx was the smallest among the four delivery firms with air-freight services, known as integrators. The company had a market share of less than 10 percent in 14 out of the 15 European countries where the EU saw problems with the UPS-TNT combination.

Any concessions to get the deal through the EU should be smaller and easier to craft than in UPS-TNT as FedEx’s European footprint is much more limited, Anderson said.

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