FedEx-TNT merger: Updates On The Deal That Could Change The Way Europe Ships

FedEx (NYSE:FDX) is one of the global leaders in logistics and delivery services. Despite the company’s strong global reach, it has so far failed to capture much of the European market. To tackle this problem, FedEx had bid to acquire the Dutch logistics company TNT Express earlier this year. In April, the Memphis-based company made a public bid to buyout TNT Express for $4.8 billion, which is a significantly smaller amount than what UPS was willing to pay for the company two years before in 2013 ($6.7 billion). The FedEx deal provides more simplicity than the UPS deal, creating lesser synergies, leading to the lower price.

See our complete analysis of FedEx here

Shareholder Approval:

In the Extraordinary General Meeting (EGM) held a week ago on October 5, TNT shareholders unanimously voted in favor of the FedEx takeover. They discussed and agreed to FedEx’s offer to buy-out all issued and outstanding ordinary shares, including those ordinary shares represented by American depository shares of TNT Express at an approximate $9 per share price. Board Member Sjoerd Vollebregt (the only board member to own shares of the company) and the Dutch Postal Service, which holds an approximate 14.7% stake in the TNT, too, have accepted the deal and are ready to sell their ownership once the deal is concluded. October 30 has been set as the acceptance date, with the minimum acceptance condition set at 80% (not the previously decided 95%) of all issued and outstanding ordinary share capital. This new minimum acceptance condition poses less of an obstacle, and could help garner more support, thereby increasing the likeliness of success. ^[1]

This decision by the shareholders does not come as a surprise. Since the last deal with UPS fell through, the ailing company has been struggling to come up with some sort of a turnaround plan which would help the company bounce back. Being acquired by FedEx will hopefully bring the financial boost and stability that TNT lacks, at the moment.

The Curveball – Regulators:

The TNT-UPS deal fell through two years ago due to intervention by EU regulators who believed that the deal would create unhealthy competitive conditions. Had the deal concluded, UPS and DHL would have owned close to 80% of the European market. The good news is, the deal with TNT will only increase FedEx’s market share to 22% of the European market, which is comparable to the market shares of DHL and UPS — 41% and 25%, respectively, in the market. Given this fact, managements of both companies are confident that any antitrust concerns can be efficiently countered and dealt with. ^[2]

FedEx and TNT Express would most probably have to make several concessions to get an approval from the European Commission (EC). The EC had previously cited concerns over the merger as creating “insufficient competitive constraints” in many European markets. The EC is also scrutinizing the merger’s effect on delivery routes out of Europe, which seems more of a concern presently.

In addition to this, UPS is actively rallying against the merger by constantly bombarding regulators with reports and analyses that are consistent with their arguments. It appears that this persuasion by the company is an attempt to encourage the EC to demand more remedies from FedEx, like sell-offs in certain markets, which would benefit UPS’s business. ^[3]

The European Commission is due to give a decision on the matter on January 15, early next year.

TNT Stock At The Moment:

The TNT stock is currently trading around the $7.60 mark, which is less than the buyout price agreed on by FedEx (around $9 per share, as previously mentioned). ^[4] The falling share price and profits have been attributed (in the latest earnings call) to the economic slowdown and instability in Brazil, China, and Australia. TNT’s business in Australia is particularly being hurt by competitive pressures and weak commodity markets. Apart from this, the Dutch based company is also suffering from lower margins in France. ^[5]

The company’s finances have been in a weak state for a while now, accumulating losses of €674 million over 4 years consecutively. TNT hopes that the deal with FedEx could help its deteriorating condition vastly as the Memphis based company is equipped with great financial muscle and expertise that could push TNT in the right direction.

If things don’t go according to plan, however, TNT has also prepared a “plan B.” This refers to a strategy update the company released in February, earlier this year. However, this strategy update is not likely to show any improvements in the company’s bottom line until 2018.

What holds in the future regarding this merger, at the moment, is all speculation. The information available presently paints a positive picture. However, something unexpected could happen to make the deal fall through. Can FedEx successfully buyout TNT and significantly boost business in Europe? All one can do is wait and see.

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1. TNT Express Shareholders Vote In Favor Of FedEx Offer, ch-aviation.com [↩]
2. EU Regulators Weigh Seeking Concessions On FedEx TNT Deal, wsj.com [↩]
3. UPS Said To Turn Table On EU In Bid To Hinder FedEx-TNT Deal, bloomberg.com [↩]
4. EU Throws FedEx/TNT Deal A Curve, aircargoworld.com [↩]
5. TNT Warns On Profit As Shareholders Approve FedEx Buyout, wsj.com [↩]