Two years after UPS was forced to abandon its attempted takeover of TNT Express on grounds of limiting competition in the European market, rival logistics giant FedEx has made its own all-cash bid for the company.
Should the deal go through, the combined companies would be a particularly strong player on the European express delivery market, which is dominated by DHL and UPS, and in which FedEx is currently a relatively small player. In particularly, FedEx would gain TNT’s strong road delivery network across the continent, as well as significant operations in markets where TNT has a larger presence than FedEx, including South America and the Middle East.
For the automotive industry, both companies have significant operations, particularly in the automotive aftermarket. However, FedEx has remained more focused on express transport and time-critical shipments, including as a major carrier for General Motors, for which it recently won a supplier of the year award.
TNT, in addition to express services, has also sought to compete more in contract logistics for automotive, including warehouse management, and inbound to manufacturing. It recently renewed an important contract with Sweden’s Volvo Group, for example, that includes express services, supplier collection and delivery to assembly plants, as well as aftermarket services.
Clearing regulatory hurdles
A stronger dollar relative to the euro and the relatively weak European economy in recent years means that FedEx’s offer is worth several billion dollars less than UPS’s original offer. FedEx’s offer of €8 ($8.69) per share amounts to €4.4 billion, or $4.8 billion at current exchange rates. UPS’s initial bid in 2012 was for €9.50 per share, which was worth nearly $7 billion by that year’s exchange rate. FedEx’s offer nevertheless represented a 33% premium on TNT’s closing price before the Easter weekend.
Antony Burgmans, chairman of TNT Express, said in a press conference on April 7th that TNT had accepted the lower bid in part because of the poorer performance in the European economy. Over the past three years TNT’s revenue has fallen, and it recorded an overall loss in 2014.
TNT Express made €6.7 billion in revenue in 2014 according to the company. FedEx, by contrast, is more than six times larger, with revenues of $45.6 billion in 2014.
Following the aborted acquisition by UPS, the acceptance of the FedEx offer may come as a surprise to some, not least UPS, or DHL, which had been among those (including FedEx) to complain to the European Commission over competition limits at the time of the UPS offer. UPS was forced to withdraw its bid in January 2013 after learning that the EC was working on a decision to prohibit the acquisition because it would limit competition in the European express logistics markets.
The Commission said at the time that the reduction in the number of integrators competing in Europe from four to three would significantly reduce the competitive constraint on the merged company and would lead to a highly concentrated market for domestic and international express delivery services.
On the surface, at least, FedEx’s offer faces the same hurdles in reducing the number of companies from four to three. However, TNT and FedEx executives said that their operations are much more complementary compared to TNT and UPS, and that there will be fewer job losses and restrictions to competition.
“We are far more complementary than what was the case with UPS. This means that the synergies will be less,” said Burgmans. “But, on the other hand, the strategic fit is better.”
“We know that there are two strong players in the marketplace. Now there will be three,” said David J. Bronczek, the president and chief executive of FedEx Express, at the news conference, referring to DHL and UPS. “At the end of the day, what the commission and what the regulatory authorities would like to see is better competition, which is better for the consumer and has better service offering and better all round conditions for the customer.”
Burgmans agreed that, since the combined FedEx and TNT operations would be able to better compete with its larger rivals, the deal was more likely to clear regulatory hurdles. Burgmans explained that the latest development was as much about deal certainty as it was about price, something it was focused on after the UPS problems, and saw the FedEx deal as a much simpler one with less overlap than the one with UPS.
UPS is still going through legal proceedings contesting this decision, which raises the question that, should the courts find in its favour, there could be complications for the present deal with FedEx. Burgmans said that too had been looked at in detail but neither TNT Express or FedEx expected that eventuality to derail the current deal.
“I can assure you that we have poured over every detail of this and we feel confident,” said Burgmans. “Last time we thought it was doable but complex, this time we are as certain as can be in life that this deal will close in Brussels.”
Should the deal be terminated, FedEx would have to pay a fee of €200m to TNT according to European law – the same amount that UPS paid the company in 2013.
In the absence of any serious upset to the deal as it stands, the companies expect to complete on it by early-to-mid 2016. The supervisory board of TNT will be composed of three new members selected by FedEx: David Binks, Mark Allen and David Cunningham, who will act as chairman. Current supervisory board members Margot Scheltema and Shemaya Levy Chocron will also stay on, qualifying as independent members. The European regional headquarters of the combined companies will be in Amsterdam/Hoofddorp.
While the TNT brand will be maintained in the short term, it will eventually be subsumed under FedEx.
Amongst the strategic advantages for the takeover put forward this week were that the customers of both companies would benefit from access to “a considerably enhanced, integrated global network” (reminiscent of the sort of thing said about the failed UPS proposal). FedEx will benefit from TNT Express’s well-established road platform in Europe. TNT makes 1m daily deliveries and has more than 1,000 hubs and depots led by its air hub in Liege, Belgium, which the companies have said will remain operational (though TNT’s 54-strong air fleet will have to be sold according to European restrictions of foreign ownership of air fleets).
FedEx, meanwhile, offers next day delivery services in Europe and makes more than 210m shipments per year into and within Europe. It already has 660 aircraft.
FedEx is clearly stronger in North America and Asia, with a larger global air express fleet, as well as providing freight forwarding, contract logistics and surface transport services in those markets.
The companies jointly stated that FedEx would strengthen TNT Express with “investment capacity, sector expertise and global scope”.
Regarding its automotive customers a spokesperson for TNT Express said it was too early to talk about individual verticals and that its existing customers would continue to receive the same service ahead of the completed merger.
“The details of how our operations will work together will be determined during the integration planning process, so we'll come back on vertical propositions in due time,” said the spokesperson. “For now, as long as the intended acquisition is not completed, day-to-day operations and service to customers remain the same.”
In a statement, FedEx said it had agreed to respect existing employment terms at TNT Express and the companies said they would cooperate to avoid any “significant redundancies” as a result of the takeover.
In the time since UPS abandoned its bid for TNT, the Dutch-based company has sought to restructure its business. It sold its domestic road business in China, and sought to restructure other areas, including its South American operations TNT Mercurio, which is managed as a separate business unit within TNT Express. The company, which had started a bidding process for the sale of that business in 2013, reversed its decision at the beginning of 2014, stating that while there was interest, it was “ultimately not at an acceptable price or conditions”.
As part of its new strategy, TNT has also sought to strengthen European road operations and core services, including to markets such as Germany. The automotive industry, including expanded aftermarket and inbound to production services, has been an important vertical in TNT’s strategy, as mentioned in the company’s recent rebranding.
Reporting by Christopher Ludwig and Marcus Williams