In a bid to expand its presence in the European markets, FedEx (NYSE:FDX) announced the acquisition of TATEX, a leading B2B express transportation company for heavy shipments in France. This announcement comes a month after its agreement to acquire Polish courier company, Opek. Both of these companies are expected to add $270 million to the company’s top-line. The leading industry giant is facing stiff competition from rival UPS (NYSE:UPS), which hasn’t missed out on the European market opportunity either. UPS has announced the taking over of the European consumer delivery company, Kiala, and intends to acquire Dutch-based TNT Express, which would further strengthen its European operations.
We have a $106 Trefis price estimate for FedEx, which is about 20% ahead of the current market price.
Though both these package delivery giants are targeting non-US expansion plans, their acquisition strategies are different in terms of scale. FedEx is looking at small scale acquisitions with revenues in the order of millions that are relatively easier to integrate in a big corporate. On the other hand, UPS is catching big fish like TNT, with market cap of $5 billion, which adds scale to the organization.
The acquisition entitles FedEx’s Express division to leverage TATEX’s domestic ground network which carries 19 million shipments annually. As FedEx gains access to the wide user base of TATEX, it shows tremendous top-line growth prospects for its international express division. In addition to strategic investments in the European region, the company is also heading strong in terms of organic growth. It has opened 38 new stations across Europe since the beginning of Q4 2011.
Further, the company is complementing its growth through heavy investments in aircraft and other equipments. It expects to spend $4.2 billion in 2012, a 22% rise over the previous year. A major chunk of these investments will go into aircraft purchase, including five B757s for intra-European routes. As these investments may take some time to generate substantial cash flows, they may negatively affect the bottom-line in the near term.