UPS Said to Turn Table on EU in Bid to Hinder FedEx-TNT Deal

  • Parcel giant seen fighting TNT tie up after its own bid vetoed
  • Court appeal over EU's 2013 ban adds to pressure on commission

UPS Delivery

Photographer: Andrew Harrer/Bloomberg

United Parcel Service Inc.’s tie up with TNT Express NV was blocked by the European Union two years ago. Now, the world’s biggest package delivery company wants the EU to frustrate FedEx Corp.’s bid to run off with the Dutch rival it once courted.

It’s lobbying hard against FedEx’s $4.8 billion TNT bid, said people familiar with the EU’s merger probe, who asked not to be named because the review is private. While such activity is common, they said UPS’s pending appeal over the vetoed deal is strengthening its hand. Taking a weaker stance with FedEx could damage regulators’ case in court.

“Maybe the European Commission feels a little bit in a straitjacket because it’s defending its analysis in the other case,” said Marc Israel, a competition lawyer at Macfarlanes LLP in London. “They’ll probably try to navigate between the precedent they’ve set” and “the court case that is pending,” Israel said.

Cut Costs

Winning the necessary regulatory backing to acquire the Dutch company 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.

Back in 2013, the EU argued that the UPS bid for TNT would have left too little competition in the market for guaranteed next-day deliveries among the remaining three “integrator” operators -- companies that have extensive air, land and IT networks capable of shifting parcels from one part of the EU to the next in the shortest possible time.

The commission was concerned that FedEx was too weak in Europe to pose a competitive constraint. Atlanta-based UPS failed to find a suitable buyer for parts of TNT to ensure that competition for delivery services wouldn’t be squelched.

UPS claimed at the time that its proposed acquisition would lead to efficiency gains that could outweigh the impact of removing a competitor. Those arguments didn’t fly with the Brussels-based commission and the U.S. company pulled the plug before regulators formally banned it.

UPS appealed the EU analysis of its bid to the bloc’s General Court in April the same year. The hearing could be scheduled at almost the same time as the EU is set to rule on the FedEx bid for TNT, one of the people said.

Higher Prices

In echoes of 2013, the commission opened an in-depth probe into the FedEx deal in July -- citing concerns over competition in the market for small packages and higher prices. The authority said it would leave DHL and UPS as the only rival integrators that control a large air and road delivery network in Europe.

Still, the commission’s review of FedEx’s bid for TNT this year has focused more closely on regular deliveries outside of Europe rather than express services. The regulator noted “very high market shares for services to some destinations leading to potential competition concerns.”

It set a Jan. 13 deadline to rule on the transaction.

UPS will be “really annoyed that their deal was shelved and then someone else comes into play” to snatch the prize, said Ioannis Kokkoris, a professor in law and economics at Queen Mary University of London. It “can try to create a very negative picture of the deal to the commission.”

Flood of Data

“What UPS can do is flood the commission with data, analysis and other kinds of information which support the UPS case against the deal,” said Kokkoris. Still, the regulator “of course is aware of the strategies of competitors. So it’s not that the commission will just be fooled into accepting UPS’s arguments but it has to review them, it has to address them.”

Lobbying against rivals’ mergers doesn’t necessarily mean that companies like UPS expect the EU to block them. Instead, it can be a ploy to encourage the EU to demand more remedies, such as sell-offs in particular markets.

“Normally when big competitors start to kick up a fuss it’s because they want to get access to divested assets,” said Kokkoris, who specializes in competition issues.

UPS and the commission both declined to comment on any discussions about the FedEx bid for Hoofddorp, Netherlands-based TNT.

“For the avoidance of doubt, UPS maintains its appeal of the 2013 decision and continues to pursue it vigorously," UPS said in an e-mail.

Benefit to Customers

TNT has “no comment on what our competitors might say,” spokesman Cyrille Gibot said in an e-mail. The company remains “convinced the acquisition will bring benefits to our customers,” he said.

FedEx said in a statement it’s working constructively with the commission and is “confident that we will close the acquisition in the first half of calendar year 2016.”

DHL said in an e-mailed statement it is “carefully monitoring the developments in our market” and a combination of FedEx and TNT would create “additional business opportunities.”

“In the short-term, experience shows that large-scale integrations will likely bring disruptions for our competitor’s customers, suppliers and staff, from which DHL can continue to gain market share,” said DHL, adding that it will cooperate with antitrust authorities if asked.

If the EU ultimately approves the FedEx bid, the commission faces another court battle.

“UPS may appeal any clearance,” said Kokkoris. “I’m pretty sure the commission is working under that assumption.”

Before it's here, it's on the Bloomberg Terminal.