United Parcel Service (UPS) has announced that it will withdraw its €5.2 billion ($7 billion) bid to take over TNT Express after having received notice that the European Commission was working on a decision to prohibit the acquisition on the basis that it would limit competition in European express logistics markets.

While the planned takeover was unlikely to have had any immediate major impact on automotive parts shipments, both companies are active in the automotive sector, in particular for express air and road shipments. When the proposed deal was announced, a spokesperson for UPS told Automotive Logistics News that in the manufacturing and automotive sectors the company saw “a great synergy” in combining TNT's express road freight network in Europe with UPS's small package, logistics, warehousing, service parts logistics and supply chain management businesses. “UPS will be bringing an unprecedented range of solutions to the table for our customers,” said the spokesman.

UPS had also expressed the potential network benefits for global operations, including for automotive, for emerging markets in Asia and in South America. In China, TNT Express has developed a less-than-truckload (LTL) freight network, a business that UPS had not yet entered. Both companies handle import/export small packages, and UPS had also applied for a domestic license to operate a network to move packages inside China.

TNT Express also has a large presence in Latin America, where it acquired several companies in Brazil. The company has struggled to turn a profit at its Chinese and Brazilian divisions. 

The EC said that its preliminary investigation indicated potential concerns for competition in the markets for small parcel delivery services. It also said that the reduction of 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.

A combined UPS and TNT would have had a market size in the express similar to that of DHL, and would have been significantly larger than any other competitor, including Fedex. Indeed, both DHL and Fedex had been vocal in their criticism of the proposed merger and its limits on competitions.

UPS had revised its initial proposal twice since November last year when it received its first challenge from the Commission, and had proposed the sale of certain assets and air-network access to rivals. Fedex had reportedly refused to engaged in talks over such a deal, while UPS had also reportedly struggled to overcome questions posed by the Commission over the viability of selling assets and space to the French airline, DPD.

UPS said it would not now pursue the transaction on any other basis. UPS will have to pay TNT Express a termination fee of €200m according to rules governing EU Competition Clearance.

A formal termination of the proposed merger, which was first announced in March last year, is expected once the European Commission officially submits its decision to prohibit the takeover.

“We are extremely disappointed with the EC’s position,” said Scott Davis, UPS chairman and CEO. “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.”

In a statement TNT Express said it regretted the situation “having believed the merger was feasible and beneficial for all stakeholders”. It added that it would now focus on further steps to improve profitability and reassuring customers of its commitment to providing services.

UPS said it would be focusing will on its growth strategy and future opportunities.