UPS, TNT Plan Asset Sales to Clear Antitrust Hurdle

November 30, 2012

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UPS and its Dutch takeover target TNT Express have submitted plans to meet European anti-trust concerns as they battle to keep the acquisition on track.

The two companies said they planned to sell assets and open up their air flight operations, but gave no details, leaving TNT Express shares languishing some 20 percent below the EUR€9.50 (USD$12.36) offer price as many investors took the view that the deal was unlikely to happen.

Andre Mulder, analyst at brokerage Kepler Capital, said it was unclear how any proposed concessions would work in practice, in particular the opening up of their airline networks, as this would require some competitors to change their overall logistics strategies.

"We however doubt whether that is sufficient to please the EC. We remain negative on the chance of success," Mulder said.

The European Commission (EC), Europe's competition watchdog, is concerned the EUR€5.2 billion (USD$6.8 billion) takeover by UPS would leave only two other big players, Deutsche Post's DHL and US-based FedEx.

The EC last month warned UPS about the combined companies' high market share and said it would seek concessions before it could approve the deal.

The two companies did not say on Friday which operations and assets could be sold and did not name any possible buyers or users of their air flight operations. But they said the terms of the offer would not change due to their proposed concessions.


"The proposed remedies aim to address the EC's concerns regarding the competitive effects of the intended merger on the international express small package market in Europe," the two said in a joint statement.

UPS has argued that in addition to FedEx and DHL, its competitors also include national postal companies such as French mail group DPD and Royal Mail's European express parcel service GLS, as well as freight forwarders such as Swiss companies Kuehne & Nagel and Panalpina.

But divestments were widely expected for the deal to go ahead. Analysts had said UPS might need to sell some assets and restructure operations, based on the overlap with TNT Express's network, as well as regulatory restrictions, and had flagged the UK business as one area that could be sold.

TNT Express is the market leader in Europe with an 18 percent share, while DHL is second at 15 percent and UPS has 10 percent.

Analysts have estimated that in the UK, TNT Express and UPS have a combined market share of about 35 percent, while in Germany and France their share is about 30 percent and in the Netherlands it is below 30 percent.

TNT Express has conditionally sold its airlines operations to Dublin-based ASL Aviation Group, the Dutch company said two weeks ago.

UPS, under European law, cannot own TNT's airline operations as it is an American company.

UPS has talked to FedEx and subsidiaries of France's La Poste and Britain's Royal Mail to sell assets or open its network to rivals, Bloomberg reported on Wednesday.