The acquisition of rival TNT would make FedEx a major player in the European parcel market.
Two years after European Union competition authorities nixed a merger between TNT Express and UPS, FedEx Corp. stepped in Tuesday morning with a $4.8 billion all-cash offer for the Netherlands-based global express carrier.
According to a joint release by the companies, FedEx’s offer price of 8 euros ($8.78) per share for TNT represents a 33 percent premium over the April 2 closing price and 42 percent over the weighted average share price during the last three months. Dutch postal service Post NL, which once owned TNT and now controls 14.7 percent of the shares, has agreed to support the sale to FedEx.
TNT’s board has also tentatively accepted the FedEx buyout, pending regulatory approvals.
TNT’s parcel delivery network is especially strong in Europe, where FedEx lacks a strong presence. FedEx Express has an international hub in Paris, but does not have infrastructure and trucking assets to support domestic courier business on the continent. Company leaders have long sought a pan-European ground network. The deal would give FedEx a highly integrated global network, complementing FedEx’s capabilities in North America and Asia. TNT, which has annual revenue of about $6.7 billion euros, has operations in Asia, the Middle East and other emerging markets. It delivers more than 1 million shipments a day utilizing a network of more than 1,000 depots and hubs.
“We believe that this strategic acquisition will add significant value for FedEx shareowners, team members and customers around the globe,” FedEx Chairman and CEO Frederick Smith said in a statement. “This transaction allows us to quickly broaden our portfolio of international transportation solutions to take advantage of market trends – especially the continuing growth of global e-commerce – and positions FedEx for greater long-term profitable growth.”
Smith said in a call with reporters that the deal will “dramatically lower our cost to serve European markets by increasing density in our pickup and delivery operation.”
Efficiency gains are also expected in hub and feeder operations, and support functions. FedEx will also be able to improve customer service, including earlier delivery and later pick-up times, Chief Financial Officer Alan Graf Jr. said.
FedEx is on an expansion spree designed to put it on par with UPS in offering customers complete supply chain services in all geographic regions. It paid $1.4 billion in January to acquire GENCO, a large U.S. third-party logistics provider that specializes in warehousing, packaging, e-commerce fulfillment and reverse logistics. In December, FedEx bought Bongo International, a small company that helps retailers with technology to enable online international sales and manage cross-border shipments. It is also investing in several large distribution centers in North America.
FedEx said it will honor existing employment terms at TNT, and that the regional headquarters of the combined companies will be in the Amsterdam suburb of Hoofddorp. TNT’s hub in Liege will continue to be a major operations center, but FedEx will sell off TNT Express’ airline to comply with cabotage laws that do not allow domestic airlines to be majority owned by foreign companies. The intercontinental portion of the airline will eventually be transitioned to FedEx’s airline. FedEx operates the largest cargo airline in the world.
EU regulators blocked UPS’ takeover of TNT in January 2013 on the grounds that the deal would concentrate too much power in one courier company since UPS already had a strong presence in many countries after a series of smaller acquisitions. UPS vehemently disagreed, saying that competition was strong in areas of the EU where most parcel delivery activity takes place and that it proposed substantial remedies, including selling off assets, in countries where there were overlaps to alleviate any concerns that consumers would pay higher prices.
FedEx has a much smaller market share in Europe, which increases the chances of the deal being approved. In fact, The European Commission said in its decision against UPS that FedEx did not represent a significant European competitor that could counteract a UPS-TNT tie up.
The TNT takeover would essentially reduce the number of global express carriers to three, along with DHL. TNT was once an integrated logistics company like FedEx, UPS and DHL, but sold off its contract logistics business to investors behind what is now known as CEVA Logistics.
UPS originally offered 5.16 billion euros for TNT ($6.7 billion in March 2013). FedEx is paying less in part because the dollar has strengthened about 15 percent against the euro, taking off about $1 billion off the UPS offer price. TNT is also a smaller company today because has eliminated its domestic businesses in Brazil, China and other places, and terminated at least 4,000 jobs as part of a turnaround strategy.
“This offer comes at a time of important transformations within TNT Express and we were fully geared to executing our stand-alone strategy. But while we did not solicit an acquisition, we truly believe that FedEx’s proposal, both from a financial and a non-financial view, is good news for all stakeholders,” TNT Express CEO Tex Gunning said of the tentative agreement. “Our people and customers can profit from the true global reach and expanded propositions, while with this offer our shareholders can already reap benefits today that otherwise would only have been available in the longer run.”
Gunning will remain in charge of the new FedEx European operation and assist in the integration of the two companies.
FedEx said it anticipates closing the TNT deal in the first half of 2016. “FedEx and TNT Express are confident that FedEx will secure all relevant completion approvals as soon as practicable. The combination of FedEx and TNT Express is not expected to raise antitrust concerns, principally as a result of the strengths of competitors in relevant markets,” the joint statement said.
FedEx makes $4.8b offer for TNT Express
