UPS – TNT merger nears agreement

UPS – TNT merger nears agreement

12th March 2012

Following on from TNT’s rejection of an initial 4.9 billion euro takeover bid from United Parcel Service Inc. (UPS) in February (read more about this here); an agreement is in sight according to people familiar with the matter.

After UPS’s bid of 9 euros a share last month for Europe’s second largest package-delivery company, the two sides are now close to a deal on conditions that may lead to job cuts and require divestments to win antitrust approval. The negotiations are focused on concessions UPS will offer to preserve TNT jobs in Europe. Bigger measures to keep jobs will most likely impact the price UPS is willing to pay.

In buying TNT, UPS, the world’s largest express package-delivery service, will bolster its European operations, giving it a competitive edge over its rival FedEx Corp.

According to Kevin Sterling, a BB&T Capital Markets analyst in Virginia, US, with expansion already underway in Germany, UPS might cut overlap there and elsewhere in Europe to satisfy competition regulators.

At the end of December, TNT employed 77,478 people.

Kevin Sterling said,

“It would have to be probably on a case-by-case basis by each country. From the UPS perspective, in order to extract some savings, they’ll definitely consolidate some offices.”

In addition, Sterling revealed that he doesn’t expect UPS to pay substantially more than its initial 9 euro-a-share offer. It is believed that an announcement will come this week.

As the smallest of the four major global express delivery services companies, Amsterdam-based TNT has been a longtime subject of merger speculation. UPS has a 7.7 percent share of the European market, while FedEx has 3.3 percent. Both of them fall behind TNT and Deutsche Post AG (DPW)’s DHL unit, which have 9.6 percent and 17.6 percent in the region respectively, according to figures from research firm Transport Intelligence.

TNT shares advanced as much as 21 cents, or 2.3 percent, to 9.54 euros in Amsterdam last week. UPS advanced 0.5 percent to $77.10 in New York. Spokesmen for both companies declined to comment on their negotiations. A spokesman for TNT’s works council declined to comment on a UPS bid.

TNT’s unions are opposed to “forced” job cuts, according to a March 6 letter sent by four of the company’s main unions to TNT Chief Executive Officer Marie-Christine Lombard and Antony Burgmans, supervisory board chairman.

Under Dutch law, UPS must clarify its intentions to the market by March 16, four weeks after the first announcement of its acquisition proposal. TNT disclosed UPS’s interest in a statement on Feb. 17, calling the first bid “highly conditional” and saying the two companies remained in talks.

While discussions are continuing, the companies may still fail to reach an agreement, according to reports.

Acquiring TNT would give UPS a 17.3 percent share of the market for European express shipments before any divestments, almost on par with DHL. The purchase would probably require sales of road operations and depots in the Benelux countries and the U.K. to satisfy antitrust regulators.

Founded in Australia as Thomas Nationwide Transport in 1946, TNT was spun off in May from the Dutch postal operator, now known as PostNL, which retains 29.9 percent of the company, according to Bloomberg data.

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