Major roadblocks thrown up by European Union regulators have increased the chances of UPS abandoning its effort to acquire TNT Express, which would give it a large market share equivalent to that of Germany's DHL.
Together, UPS and DHL would control about half the courier market in Europe.
In October, the European Commission delivered to UPS and TNT a confidential statement listing its objections to the proposed merger, which officials foreshadowed in public comments about the concentration of power being anti-competitive. UPS and TNT are scheduled to meet with EU officials next week to defend the deal, according to multiple news accounts.
On Nov. 2, EU Commissioner for Competition Policy Joaquín Almunia said the EU expects UPS and TNT to make "substantial" concessions to enable the deal to proceed. News reports from Europe said the commission sees competition and antitrust problems in most of the EU member states. Many observers had expected the EU to evaluate the merger's impact on the courier sector on a broader, pan-European basis, which might have turned up pockets of concern.
The Wall Street Journal
reported Friday that UPS plans to argue in Brussels
that major asset divestitures shouldn't be necessary, but is analyzing what parcel operations in Europe it could potentially give up without harming service. Another option, according to WSJ
, is for UPS to open its network to some competitors.
Since UPS announced plans to buy TNT for about $6.5 billion, or 9.50 euros per share, TNT's share price has dropped almost a quarter to 7.22 euros. Authorities in the Netherlands, where TNT is based, recently gave the companies until the end of February to gain approval from EU and Chinese authorities for the deal.
UPS would probably be better off if the deal fell apart, according to Stifel Nicolaus stock analysts in a note to clients. UPS is the world's largest package delivery company, has strong cash flows and solid operations in Europe already, "so we don't believe the acquisition is strategically vital. The China and Brazil operations they would acquire with TNT are rather insignificant, are losing money, and could be achieved independently by UPS (for less money), in our opinion," Stifel Nicolaus said.
It predicted the transaction has a one-third chance of being finalized.
If the deal does not get approved by the Feb. 28 deadline, UPS will be obligated under its contract to pay TNT a 200 million euro ($225 million) termination fee. - Eric Kulisch