UPS in Takeover Talks with TNT: A Look at the Fundamentals

UPS in Takeover Talks with TNT: A Look at the Fundamentals
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UPS in Takeover Talks with TNT: A Look at the Fundamentals

UPS (NYSE:UPS) said on Friday that they were still in talks with the Dutch shipping company, TNT (AMS:TNT) Express with regards to a takeover.  Currently, the takeover values TNT at 4.89 billion euros or $6.4 billion.

UPS has said that they were in “constructive discussions with TNT Express regarding a potential transaction to acquire the entire issued share capital” (NY Times).

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This released statement comes after TNT Express’s board of directors effectively rejected UPS’s takeover bid on February 17th.  However, the company did acknowledge that they were still in talks with UPS.

If the talks do workout and UPS does acquire TNT Express, it would be the company’s largest acquisition.  The last large takeover that UPS had was the takeover of Overnite Corporation for $1.2 billion back in 2005.

UPS definitely has the resources available to make this acquisition.  As of December 31st, the company has $5.5 billion in cash and short term investments.

UPS’s takeover would be a positive for TNT shareholders.  The Dutch shipping company was spun off from its parent company, PostNL last May and it has had a hard time staying profitable due to reduced demand for air shipping and economic troubles in Europe.

The takeover would be a good move for both parties because UPS will be able to gain more exposure to growth in Europe, while TNT Express shareholders no longer have to suffer from falling margins and demand.

UPS is a strong company and I would argue, the best parcel shipping service company.  Their commitment to quick deliveries makes them a go-to destination for businesses and average Joes.  Not to mention they are one of the leading companies in alternative fuel.  UPS has a few select fleets running on natural gas thanks to the company’s partnership with Westport Innovations.  Westport’s product is able to turn regular gasoline-run engines into engines that can run natural gas.

All in all, this would be a great takeover for both sides.  UPS would have more Eurozone exposure while TNT Express would be able to give shareholders more value.  Although talks are still in a delicate state, UPS should have no problem with being able to sweeten the pot to get the TNT board’s approval.  Assuming that there will be no negatives for UPS such as increasing debt load, etc then I do not see why this takeover can not be completed.

More about UPS:  UPS currently has a P/E of 20, a nice dividend yield of 2.89%, and growing sales and profit margins.  The company has a bit of a debt load with a total debt/equity of 158.18.  However, UPS has a very solid return on equity, assets and investments with 50.67, 11.14, and 13.65 respectfully.

The company has a decent P/E but for some people it could be a bit high.  However, UPS pays close to a 3% dividend which is a nice yield for shareholders.  Debt is a bit of an issue but since UPS has strong earnings and profit margins it isn’t something to lose sleep over.  However, getting down that debt should be a priority for management.  The company’s valuation ratios are outstanding, particularly return on equity.  Certainly, UPS is a solid company with solid fundamentals, not the most attractive fundamentals but solid.

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