A case team from the European Commission has informed officials from UPS and TNT Express that it's rejecting a proposed $6.3 billion merger between the two integrators.
UPS officials have told TNT Express that they see no path toward acquiring the company and will not pursue the transaction without EC approval. The merger, originally announced in March, was estimated to go through during the fourth quarter of 2012. UPS will now pay TNT a $267 million termination fee.
The decision is expected to be adopted formally in the coming weeks. Shares of TNT are currently down as a result of UPS' decision.
"We are extremely disappointed with the EC's position. We proposed significant and tangible remedies designed to address the EC's concerns with the transaction,” UPS’ Scott Davis said in a statement. “The combined company would have been transformative for the logistics industry, bringing meaningful benefits to consumers and customers around the world, while supporting growth in Europe in particular."
The European Commission had issues with the proposed merger from the start, seeing a lack of competition in the overnight parcel sector had a deal gone through. In November, TNT and UPS told the commission that the two companies would sell
business assets and grant air access to outside companies in order to
address the organization's objections to the proposed merger. UPS then
altered these proposed internal remedies twice at the European Commission’s request. It
had been reported that UPS was shopping around parts of TNT Express to
the likes of FedEx, which wasn’t interested. TNT Express officials had
also announced the conditional sale of TNT Airways and Pan Air to ASL
Aviation Group. The sale was to be completed once the EU approved the
“UPS and TNT tried to address some of (the commission's) concerns, but were unable to find a buyer for some of TNT Express' operations,” according to a report by Dahlman Rose & Co. “FedEx is one of the few companies with the balance sheet to pull off a deal, but in the past, stated it did not want to participate in the transaction. We do not expect FedEx to pursue TNT Express at this time as management is focused on tuck-in acquisitions in Europe.”
Early last year, TNT Express released a statement that it had received an unsolicited takeover offer from UPS, confirming industry rumors that had been circulating for quite some time. That first offer from UPS stood at 9 euros per share, a figure that the TNT board rejected. A little more than a month later, the two integrators came to an agreement: The price was to be 9.50 euros per share, a near 50 percent increase over TNT’s actual pre-negotiation value of 6.18 euros per share.
PostNL, a major shareholder of TNT Express, had a large hand in the earliest negotiations for the deal. Herna Verhagen, CEO of PostNL, today expressed her distaste for the latest development and hinted at future actions with TNT.
"The transaction between UPS and TNT Express would have maximized the value of our stake in TNT Express,” she said. “If upon a formal decision of the European Commission, the acquisition of TNT Express is not pursued, we expect that we will monetize the stake over the medium term to create better value for shareholders, after we have seen stability return to TNT Express.”
Industry officials had been mixed about the prospect of a deal, with most giving it a 50-50 chance. While FedEx could have seen some benefits with an expansion into Europe, ultimately that was not to happen. Some put the blame on DHL’s bending of the commission’s ear. At consultancy firm Transport Intelligence, officials took issue with how the European Commission handled the proposed transaction from the start.
"It is hard to see what the EC sought to achieve through the negative stance they took to this deal. Their decision making process looks flawed, caused by a fundamental lack of understanding of the industry,” Transport Intelligence’s Joel Ray said in a statement. “It seems to have been driven by a desire to engineer a market structure through political motivations. European shippers would have gained from the acquisition through a strong new road- and air-based player. This decision has set the market back many years, and risks reducing competition, not increasing it." - Jon Ross