UPS is spending $6.77 billion to acquire a European competitor, the largest-ever purchase for the Sandy Springs logistics company.
The announced acquisition of TNT Express, based in the Netherlands, gives UPS more strength in the fragmented European market, making it a top competitor there with Germany's DHL. It also improves UPS' offerings in countries such as Australia and Brazil where UPS has a presence but has room to expand.
The benefits to UPS could be many, analysts said, as the company is able to combine the two operations.
"I think this is going to turn out to be a very good fit for the two companies," said Satish Jindel, president of the transportation consulting and research firm SJ Consulting. "The real value here is being able to integrate it, to draw the synergies."
UPS will be able to find between $525 million and $725 million worth of annual savings at the end of a four-year integration period, the company said, and it expects to make money off TNT beginning this year. The deal is still subject to regulatory action, though.
During a company conference call Monday, UPS Chairman and CEO Scott Davis said he was "very confident" the acquisition would be approved. The company said it was too early to talk about possible job cuts.
Despite economic trouble in Europe, UPS is continuing to invest in its business there because of the high number of exports and the expected movement of packages across borders, Chief Financial Officer Kurt Kuehn said in the call.
"UPS continues to see great opportunities in Europe and is committed to investing in Europe," he said.
Jindel said the deal is good for the whole industry, as it allows consolidation while not eliminating competition. In Europe, he said, the top four carriers account for just 60 percent of the $50 billion European market. In the U.S., UPS, FedEx and the U.S. Postal Service account for 98 percent of the $60 billion market.
In a research note, Stifel Nicolaus analyst David Ross estimated that a combined UPS/TNT would command between 25 percent and 30 percent of the European market -- putting it in first place, but not taking enough business for the deal to be blocked for antitrust reasons.
Jindel said he expects UPS to integrate TNT faster, and for it to cost less, than the 1 billion euros the company expects to spend on integration costs. But Ross said there may be unforeseen troubles, even as UPS works to meld the companies on a country-by-country basis.
"Although we believe this to be a long-term strategic win for UPS, the integration challenges should not be overlooked, as network integrations rarely, if ever, go as planned," Ross wrote.
UPS first announced that it was in discussions to acquire TNT a month ago, and the $6.77 billion price amounts to a payment of 9.50 euros per share, a 53.7 percent premium over the company's stock at that time. Together, revenue at the combined company is expected to be $60 billion; UPS' revenue in 2011 was $53.11 billion.
The deal will be paid for with $3 billion of UPS' cash, with the remainder being financed through a new debt offering. UPS agreed to pay $264.1 million to TNT if the deal doesn't pass government antitrust scrutiny. There is also a clause to protect UPS if TNT looks elsewhere for a partner. TNT, which was also considered a potential takeover target of FedEx, can only accept another deal that's at least 8 percent higher. It also agreed to pay $66 million if it breaks off the deal with UPS. FedEx hasn't formally said it's interested in TNT.
The Associated Press contributed to this story.
About the Author
