FedEx, the largest package-delivery company in the Americas, has agreed to buy Dutch TNT Express rival for €4.4 billion ($4.8 billion,£3.2 billion). The deal will allow the American global courier to own 22 per cent of the market share in Europe, close behind rival UPS, which owns 25 per cent and further behind DHL, which owns 41 per cent. It will also offer FedEx an additional 4 per cent in Asia Pacific, where DHL also dominates the market. The all-cash deal for €8 a share gives TNT a premium of 33 per cent over the closing price of it’s stock on April 2nd.
Baker & McKenzie’s London and Amsterdam teams are providing legal advice to FedEx while the Magic Circle firm Allen & Overy (Amsterdam) represents TNT on the deal. The Benelux law firm, NautaDutilh is also involved in the deal on FedEx’s side.
JP Morgan is working as a financial advisor for FedEX while TNT is advised by Goldman Sachs International and Lazard.
The deal will allow FedEx, with a strong European air fleet, to expand their ground-delivery business in Europe, where TNT already possesses an impressive door-to-door delivery network. Otherwise, FedEx would have to build its network from scratch. FedEx will therefore be able to save on costs by operating their sorting centres at full capacity and it could therefore offer more attractive pick-up and delivery packages.
Frederick W. Smith, FedEx’s founder and CEO also points out that the company is taking advantage of market trends, “especially the continuing growth of global e-commerce”. The package delivery companies can take advantage of the rapid growth in the e-commerce sector, which is evaluated to be 18 per cent in 2015, compared to only 14 per cent in the US. Without the road network that TNT possesses, it would be harder for FedEx to adapt to the current need to provide service to smaller dispersed consumers, rather than to higher volume corporate clients, as was the case a few years ago. It is said that FedEx will use ELD devices (read more here: https://bestelddevices.com/best-eld-guide/) to record driving hours, ensuring none of their drivers will go over the hours of service when driving.
TNT has been part of restructuring efforts for the past two years, with the firm operating at a loss of €137 million in the 4th quarter of 2014 and €673 million over the last four years, due to tough economic conditions in Europe. TNT will be able to benefit from FedEx’s global presence, since the Dutch-based company currently has only a modest presence in Asia and America. Therefore, it will become less vulnerable to the weakness of the European market. In addition, as TNT’s CEO Tex Gunning observes, the deal is not only beneficial for consumers, but to shareholders as well, who will be able to “reap benefits today that otherwise would only have been available in the longer run.”
Europe is starting to be seen as an attractive market once again, with the euro-zone GDP forecasted to grow 1.5 per cent this year, and 1.9 per cent in the following year. This is mainly due to the low oil price and the quantitative easing monetary policy recently initiated by the European Central Bank. More deals and investments by American companies in the European region are likely to follow if the dollar remains strong and the Euro stays weak.
FedEx is the latest company to take advantage of low borrowing costs and it decided to fund part of the acquisition through debt.
The deal will be subject to regulatory approval. In 2013, when UPS, the second largest global carrier by revenue, tried to buy TNT for $2 billion more than FedEx offers now, the watchdogs did not allow the deal to go through because of competition issues.
Understandably, there are concerns that the competition authorities could stop a deal between two of the largest global delivery companies again. However, according to FedEx officials this should not be the case since FedEx currently possesses a much smaller European market share than UPS and their services are not overlapping with those of TNT, but are rather complementary. The CEO of FedEx said they were not concerned, as they have “great lawyers” who looked at the deal in close detail.
In fact, the reason for which the UPS-TNT deal failed is because FedEx was not a significant player in the market at that time, and the merge would have created a duopoly in Europe, leaving consumers to choose only between DHL and UPS-TNT. When FedEx was asked to buy TNT units in 2013 in countries where competition problems were present, the American company claimed “not to be interested” in TNT’s assets, which made the UPS-TNT deal fail.
The previous decision of the competition authorities indicates that this new deal would actually be “pro-competition” rather than against it. In order for the two companies to avoid any regulatory concerns, TNT has already decided to sell its 32 airplanes. This is also because the European Commission restricts foreign ownership of airlines in Europe.
One of the countries where problems can arise is India, since UPS only has a small presence in the market, with DHL and the merging TNT-FedEx creating a duopoly. Filings to the authorities will also be made in Brazil and China.
According to the terms of the deal, if a competitor makes an offer within the next eight weeks, the takeover by FedEx will be terminated if the new offer exceeds the existing proposal by 8 per cent. Unless a smaller competitor makes a move, DHL and UPS would be unlikely to make a proposal, since they already hold most of the market share in Europe.
If everything goes according to plan, the deal will close in early 2016.