Tuesday, January 15, 2013

Major Express Freight and Logistics Merger Torpedoed by European Commission  

UPS Acquisition of TNT is Decreed Anti Competitive

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EUROPE – US- UPS announced yesterday that it had failed to obtain permission from the European Commission (EC) in its bid to acquire TNT Express. The two express freight and logistics giants have been trying to complete the deal since they announced in a joint statement last March that terms had been agreed for an all cash offer of €9.50 per ordinary share which at that time represented a premium of 53.7% on the TNT stock price of €6.18, the rate which existed when the talks were first announced in February 2012.

The intention was to integrate the two companies’ strengths with UPS taking advantage of TNT’s road freight network and expanding South American interests whilst UPS was patently stronger in the North American market. In October the pair received a Statement of Objection from the EC concerned by the competitive effects of the intended merger on the international express small package market in Europe. This was countered by a remedies proposal in November and two subsequent revisions but it seems this last announcement that the EC was working on a decision to prohibit the proposed acquisition was the final nail in the coffin.

The collapse of the deal is a catastrophic blow for the Dutch TNT group whose shares plunged when news of the EC verdict was announced. The stock price almost halved with a 42% drop leaving the shares at €4.75. The effect on UPS is likely to be much less severe.

UPS issued a statement to say that, upon prohibition, the Offer Condition relating to EU Competition Clearance will not be fulfilled and UPS will pay TNT a termination fee in the amount of  €200 million and will withdraw the Offer. Further announcements will be made by UPS and TNT once the European Commission has issued its formal decision which is expected to be adopted formally in the coming weeks. Scott Davis, UPS Chairman and CEO said:

“We are extremely disappointed with the EC’s position. We proposed significant and tangible remedies designed to address the EC’s concerns with the transaction. The combined company would have been transformative for the logistics industry, bringing meaningful benefits to consumers and customers around the world, while supporting growth in Europe in particular.

“I would like to thank TNT Express for their shared vision of the value we would have created for our customers, shareholders, and employees, and for the significant efforts they made over the past year. Looking ahead, our company focus will be on the continued execution of our growth strategy. While we viewed the acquisition as a compelling growth platform, our financial strength allows UPS to capture future opportunities.”

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