FedEx Receives The Much Awaited EC Approval

Last week, FedEx (NYSE:FDX) announced that the $4.8 billion acquisition of TNT has been approved by the European Anti-trust Commission (EC) unconditionally. This comes as some compensation for the company that suffered in performance this holiday season due to higher than anticipated last-minute e-commerce orders. The EC’s approval is one of the biggest hurdles facing the deal thus far. Despite this, however, the shipping giant is still awaiting approval from other countries’ anti-trust authorities — most notably Brazil and China. That being said though, FedEx seems optimistic that the deal will go through without any complications. The stock traded up marginally after the announcement only to fall again during midday trading. ^[1]

This deal is very important for FedEx as it will enable the company to really expand its network in Europe. Currently, DHL and UPS lead the standing table with the highest market shares of 19% and 16%, respectively. However, with the completion of the deal, FedEx-TNT will surpass UPS to become the second largest player in the European market with 17% of the total market share (FedEx accounts for 5% of the market share currently). ^[2] The deal will provide the Memphis-based courier giant the opportunity to increase its network in the continent — especially its ground services. The deal will also provide the company with advantages in Latin America where TNT has a larger presence than FedEx.

See our complete analysis of FedEx here

Previously, UPS had bid to acquire TNT for a significantly higher price of $6.7 billion. This acquisition, however, was thwarted by the EC, which felt that the deal would create unfair competitive conditions in Europe. This makes sense considering that UPS-TNT and DHL would have created a duopoly, which, together, would have accounted for more than 45% of the entire European shipping market.

FedEx is paying about $9 a share to TNT in all cash agreement. This translates to roughly $4.8 billion, which is almost $2 billion lesser than what UPS was offering the Dutch company. There are two reasons for this:

1. The FedEx-TNT deal provides lesser synergies for the company due to FedEx’s smaller market share. This essentially means that the deal provides the U.S. shipping company with lesser synergies after the integration.
2. TNT’s financial position has been quite weak in the past few quarters. The company has posted consecutive losses over the last 4 years. The Dutch shipping company has accumulated over $730 million in losses within the aforementioned time period.

So far, things regarding the deal seem to be going in FedEx’s favor. However, as mentioned previously, the company is still awaiting approvals from two other major economies — Brazil and China. The more worrisome of the two assessments is China’s. The first problem is that the newly-established antitrust authority has a much smaller staff than most of its peers. This has created a backlog that may delay the evaluation process further. Secondly (and more importantly), experts believe that the new antitrust authority makes assessments that go beyond traditional competition laws. For example, they also evaluate whether the deal harms overall Chinese national development or not. Given the current economic state in China, there is some concern here, however, FedEx is confident that they will get approvals from all remaining countries. The management hopes to conclude the acquisition within the first half of the year. ^[3]

The deal comes with many evident benefits, but if it goes through, it will take a toll on operations, initially. The integration process will be long and other shipping companies like DHL and UPS will take advantage of this — not only in Europe, but in the U.S. also. That being said, though, it seems plausible that with a strong hold in Europe, the company will be able to boost operations, not only in the continent, but globally as well. Such a deal definitely has the potential to aid long-term growth going forward, especially with the heavy surge in global e-commerce driving volumes.

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1. FedEx Wins No-Strings-Attached Approval for TNT Deal From EU, www.bloomberg.com [↩]
2. Why TNT Acquisition is a Good Deal for FedEx, www.forbes.com [↩]
3. EU Approves FedEx Acquisition of TNT Express, www.wsj.com [↩]