European Commission Officially Blocks UPS-TNT Express Merger

The European Commission (EC) officially denied the proposal of United Parcel Service, Inc. (NYSE:UPS) to acquire TNT Express NV (AMS:TNTE) for approximately €5.2 billion ($6.9 billion) on Wednesday.

European Commission Officially Blocks UPS-TNT Express Merger

On January 14th last year, the EC indicated that it will not approve the deal because of antitrust issues, which prompted United Parcel Service Inc (NYSE:UPS) to abandon its bid to buy out the Dutch shipping company.

The EC explained that the merger of the United Parcel Service, Inc. (NYSE:UPS) and TNT Express NV (AMS:TNTE) would significantly reduce competition and choices for customers in the European region. The commission emphasized that prices could go up and the only alternative to UPS would be DHL, which is harmful to customers.

Joaquin Almunia, vice president in charge of competition policy for EC said, “Many businesses active in the EU Single Market need to send small packages to another European country with guaranteed delivery on the next day. This requires access to affordable, reliable services that truly fit their needs. These businesses would have been directly harmed by the takeover of TNT by UPS because it would have drastically reduced choice between providers and probably led to price increases.”

Almunia also said that the commission worked with UPS for possible remedies, but the US-based shipping company did not provide adequate solutions to resolve the identified serious competition problems.

United Parcel Service Inc (NYSE:UPS) offered to divest the subsidiaries of TNT Express in the 15 relevant Member States of European Union including its subsidiaries in Spain and Portugal under conditions to increase the volume of small package express deliveries, which will be transferred to the purchaser. The company also proposed access to its air network for 5 years, if the purchaser is not an “integrator.”

The commission cited it “has serious doubts on the ability of the very few interested purchasers to exercise a sufficient competitive constraint on the merged entity in intra-EEA express delivery markets on the basis of the remedies offered” by UPS.

The EC is focused on finding integrators with aircrafts to provide services in the express mail sector to ensure the quick delivery of small packages over long distances and have ground network operations such as sorting centers and delivery vehicles.

According to Almunia, “U.P.S. was clearly not ready, or not in favor, or not prepared to explore this kind of solution.”

Analysts at RBC said the decision of European Commission is not surprising because United Parcel Service, Inc. (NYSE:UPS) and TNT Express NV (AMS:TNTE) already knew its decision. The analysts said, “As we have said before, we did not view TNT as a must own property for UPS given the company’s already dominant position in the European market and existing infrastructure in the Asia/Pacific region. We had not built the expected accretion from TNT into our model and do not need to adjust our earnings estimates. With the prospects of a deal behind the company, we believe UPS will devote more cash to stock repurchases and dividends driving greater shareholder returns.”