Saturday, February 18, 2012

TNT rejects UPS offer to acquire the company

Friday, TNT NV rejected UPS' acquisition attempt. UPS' offer of €9 per share was declined however, talks continue. According to Ti's CEO, John Manners-Bell, "TNT's sale has been on the cards for some time even though it previously appeared that UPS and FedEx had rejected the idea. We expect that there will be an improved offer as well as potential interest from other parties. This is just the start of what will be a long and protracted bargaining process."

If and when an acquisition of TNT is made, it will surely be benefical for the acquirer. Besides being  one of the leading express providers, the company also has a strong European cross-border road network. It has also set up similar networks in SE Asia and South America. According to TNT press releases, its SE Asia road network has proven quite successful. This is one of the fastest growing regions in Asia as manufacturing moves into the region and intra-Asia trade increases. Although the TNT South American network appears to not have been as successful as that of Asia, an entrance into the South American growing transportation/logistics market will also be a positive if issues can be worked out.

Also, TNT's pharmaceutical logistics solutions will be another added bonus for those companies, such as UPS and FedEx, that are interested in expanding further in this industry.

Although many benefits exist for the company that may acquire TNT, it still remains to be seen if and who will acquire the beleagured company. Having been spun off from its parent company earlier last year, TNT has experienced a lackluster economic environment and an unforgiving air freight market. TNT board members have expressed their frustrations as TNT has made promises to take corrective measures.

Will FedEx make a bid for the company? Perhaps not. A year ago, FedEx CFO, Alan Graf Jr. told an investor's conference that the business was too expensive for FedEx to make a bid. This would include its acquisition/committment of Boeing aircraft which may prevent such a move. Perhaps FedEx has changed its strategy to one that is similar to DHL's, that of focusing on export markets as oppose to domestic markets?

Still, such an acquisition, would, perhaps, be of greater benefit to FedEx by giving it a stronger footing in Europe, a region that they appear to be not as strong in as UPS is currently. Plus, it would provide a great opportunity for FedEx to re-enter the intra-European market in which they pulled out of in 1992.

If UPS is successful, this would be the company's largest acquisition. It's largest to date is the 2005 acquisition of Overnite at $1.2bn. UPS has plenty of cash on hand and appears to be itching to spend.

UPDATE: S&P noted on Friday that it may cut UPS' rating because of proposed acquisition. Zacks reaffirmed its "neutral" for the company.

Will there be a TNT bidding war? Stay tune. Ti will have an in-depth look at this topic in Monday's newsletter. To sign up, please visit the Transport Intelligence website.