The European Commission has officially issued a decision prohibiting the proposed merger between UPS and TNT Express, saying it would restrict competition in the EU small package market.
The ruling had been expected for some time. UPS and TNT have agreed to terminate the merger plans, with UPS owing a $267 million termination fee.
The commission said the number of small-package players in 15 of its member states would have been reduced from three to two, with DHL being the only non-UPS option in some areas. FedEx does have a presence in Europe, but its market share is limited.
This, the European Commission reasoned, would have lead more easily to price increases. Even with UPS agreeing to sell off parts of TNT in the countries at question, the commission found that it was not enough to save the merger.
The commission’s Joaquín Almunia said businesses need affordable access to guaranteed next-day small package delivery. That would have not been possible once the merger was completed, he said.
“These businesses would have been directly harmed by the takeover of TNT by UPS because it would have drastically reduced choice between providers and probably led to price increases,” he said in a statement. “We worked hard with UPS on possible remedies until very late in the procedure, but what they offered was simply not enough to address the serious competition problems we identified.”
News of the impending decision leaked out last month, so the major players in the ongoing TNT Express-UPS saga have had time to voice their distaste with the European Commission’s decision. PostNL, a major shareholder of TNT Express, played a major role in trying to push the negotiations through. When the EC news initially broke, Herna Verhagen, chief executive officer of PostNL, mentioned that PostNL would look to get rid of its TNT Express shares.
In the end, though, the commission reasoned it was looking out for the best interest of European consumers. Many industry watchers assumed FedEx would pick up the divested pieces of TNT Express to alleviate the European Union’s concern and provide a bit more parity in the market. In the end, though, FedEx never expressed that much interest. Some blamed DHL for muddying the waters.
At Transport Intelligence, Joel Ray called foul for political reasons, saying the European Commission’s reluctance was “driven by a desire to engineer a market structure through political motivations.” He added that European shippers ultimately lost out.
“European shippers would have gained from the acquisition through a strong new road- and air-based player,” he said. “This decision has set the market back many years and risks reducing competition, not increasing it.”
While UPS will be fine, it’s much more difficult to predict the road ahead for TNT Express. TNT’s former CEO, Marie-Christine Lombard, resigned in September, and if PostNL jumps ship, it could prove disastrous for the integrator.
“At the end of the day, I don’t know what TNT is ultimately going to do,” Bill Greene, managing director of transportation at Morgan Stanley, said during a recent market update webcast. “At this point, they have to refocus; they need a CEO and a standalone strategy.” - Jon Ross