FedEx unveiled plans on Tuesday to acquire struggling rival TNT Express for $4.8 billion to enlarge its footprint in Europe.
Following the announcement, the Dutch company’s shares jumped 30% to €7.83 in early trading in Amsterdam on Tuesday.
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FedEx in all-cash deal to acquire TNT
The parcel delivery group FedEx has reached a conditional agreement to acquire the Netherlands-based TNT Express for 4.4 billion euros or about $4.8 billion. FedEx would pay €8 a share in cash for each outstanding share of TNT, representing a 33% premium from its closing price last Thursday before the Easter weekend. The offer also translates into a 42% premium compared with the average over the past three months.
However, FedEx’s offer is lower than a previous bid by UPS that was blocked by competition authorities. The abortive €5.2 billion UPS bid had offered €9.50 a share.
As reported by ValueWalk, in 2013, UPS walked away from its bid for TNT Express as the European Commission had said it would not approve the merger, even though UPS had revised its proposal several times in an attempt to address the EC’s concerns.
Reacting to Tuesday’s deal announcement, Antony Burgmans, chairman of TNT said: “This is a much simpler deal than the UPS deal. The overlap [with UPS] was significant. This means the [cost saving] synergies will be less, which is reflected in the price, but the strategic fit is better.”
TNT’s chief executive Tex Gunning said the Dutch company didn’t solicit an acquisition, but they truly believe that FedEx’s proposal, both from a financial and a non-financial view, is good news for all stakeholders.
David Bronczek, FedEx chief executive, expressed confidence that regulatory hurdles could be cleared, though it could take a year for the deal to finally complete. The companies indicated that a break up fee of € 200 million will be payable to TNT if it doesn’t.
FedEx’s looking to enlarge European foot print
The latest deal would facilitate the combined group to create a strong third competitor in Europe to take on DHL and UPS. The acquisition announcement comes as Europe’s delivery sector undergoes a scramble for market share, putting pressure on prices and profitability as rivals discount to win customers.
According to Allan Smylie, transport analyst at Davy, DHL had a 19% market share in Europe, based on 2013 industry data, compared with UPS at 16%, TNT at 12% and FedEx at 5%.
FedEx’s decision to bid for TNT followed a 17% drop in TNT shares over the past year, compared to a 21% rise in the benchmark Dutch AEX index. The Dutch group has struggled and reported a €137 million loss for the final quarter of 2014, citing mounting restructuring costs. It also warned in February that it anticipated difficult conditions to continue in its main western European markets.
On the contrary, FedEx reported strong third quarter earnings ending February 28th, reporting earnings per share of $2.01 on revenue of $11.72 billion. The shipping company also indicated that it expected to post record results for both the March to May quarter and the year through May.