TNT And UPS No Deal: Mixed Reactions To The News

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Today United Parcel Service, Inc. (NYSE:UPS) announced that it would not buy TNT Express NV (AMS:TNTE) for $6.9 billion after all, and analysts from several investment firms are weighing in on that decision. Credit Suisse, Citi and Bank of America Merrill Lynch have all issued investor notes on the topic today.

TNT And UPS No Deal: Mixed Reactions To The News

Officials at UPS said they walked away from their bid for TNT Express because the European Commission had said it wouldn’t approve the merger, even though UPS had revised its proposal several times in an attempt to address the EC’s concerns. United Parcel Service, Inc. (NYSE:UPS) now must pay a $265.5 million fee to TNT Express NV (AMS:TNTE) because the deal didn’t go through.

In their report, analysts at Credit Suisse laid out their expectations for United Parcel Service, Inc. (NYSE:UPS). They expect that the company will continue to be committed to investing in Europe because of how fragmented the continent’s delivery service market is. The acquisition of TNT Express NV (AMS:TNTE) would have given United Parcel Service sudden increases in exposure for both Central and Eastern Europe, so they expect that UPS will continue to focus its efforts in those areas.

Credit Suisse analysts have rated shares of UPS at Outperform and set their target price at $92 per share. They expect that the company will “continue to favor dividends, followed by share repurchases.” They remind investors that in September 2011 the company said it would buy back 2 to 3 percent of its shares every year from 2012 to 2014.

Analysts at Bank of America Merrill Lynch are on the other side of the spectrum. They have reiterated their Neutral rating on shares of United Parcel Service, Inc. (NYSE:UPS) but raised their price objective between $79 and $84 per share.

They said that the EC’s push to prevent the merger of UPS and TNT Express NV (AMS:TNTE) shows a “desire to keep afloat a distant fourth service provider in the global express market.” They note that published reports indicated that UPS was willing to do almost anything to acquire the company, including selling TNT’s airline, giving access to its network to competitors and even allowing FedEx to buy part of its overlapping network. BAML analysts expect shares of UPS to rally temporarily, especially since it has underperformed the market since the announcement of the merger with TNT Express.

Citi analysts fall in between the views of Credit Suisse Group AG (NYSE:CS) and BAML, reiterating their Buy rating and their $86 per share target price for shares of UPS. They also noted that the company could buy back its shares and say that could be a positive for the stock. In their estimates, UPS will have enough cash to buy back almost 60 million shares of its stock at current prices. That’s around 6 percent of the outstanding shares.

Citi also said although most of the company’s cash is now in euros, only about $1 billion of its total cash is located offshore and would be subject to repatriation, which would inhibit a large buyback. They don’t believe FedEx will bid on TNT Express, although the EC could see a merger of FedEx and TNT to be better than one involving UPS because FedEx has a smaller footprint in Europe. Citi analysts believe FedEx is more focused on restructuring rather than expanding.

In early afternoon trades, shares of United Parcel Service, Inc. (NYSE:UPS) rose more than 1 percent.

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