United Parcel Service
(
UPS
) will finally acquire TNT Express, a Dutch shipping company,
following the initial rejection of the bid by the latter. This will
be the biggest acquisition this year and the largest for United
Parcel in its history, if completed successfully.
United Parcel made an all-cash offer of €9.50 per share, or
€5.16 billion ($6.77 billion) in total. This was up €0.50 per share
from the offer made in February by United Parcel. The company
intends to utilize $3 billion from the existing cash balance and
the rest from new debt arrangements to pay for the offer.
The deal would boost United Parcel's footprint in Europe, in
particular Britain, France, Germany and the Netherlands, making it
the global leader in the logistics industry with annual revenues of
more than €45 billion ($60 billion). The transaction will further
expand the company's presence in Asia and Latin America.
TNT Express is the market leader in Europe with an 18% market
share and moves 4.7 million parcels, documents, and pieces of
freight every week to more than 200 countries.
United Parcel, the world's largest package delivery company, is
already spreading in Europe through smaller acquisitions. In
December last year, the company acquired Italian pharma logistics
provider Pieffe Group to enhance its position in North and South
America, Europe and Asia. In February this year, United Parcel
announced the purchase of a Belgian e-commerce company, Kiala.
The TNT acquisition is expected to broaden the gap between
United Parcel, which would be enjoying around 16% market share in
Europe post-acquisition, and its major rival
FedEx Corporation
(
FDX
) that has only 3% of market share.
The combined company will generate about 36% of revenues outside
the U.S., up from the current 26%. United Parcel projects the
transaction to be earnings accretive in the first year and to
generate pre-tax cost synergies of €400-€550 million ($525-$725
million) by the end of the fourth year after completion (i.e.
2015). Further, United Parcel will deliver return on invested
capital of at least 25% by 2014, as expected, upon the successful
integration of TNT.
However, the company will incur one-time pre-tax costs of a
billion euro or more than a billion dollars to integrate the
operations of both the companies over the next four years.
Additionally, the fruitful integration of employees and operations
remains a risk to the company.
The transaction, pending various regulatory approvals, is
expected to be over in the third quarter. Alternatively, United
Parcel has to pay €200 million to TNT should the deal fail.
We, currently, have a long-term Neutral rating on United Parcel.
For the short term (1-3 months), the stock retains a Zacks # 2
(Buy) Rank.
FEDEX CORP (
FDX
): Free Stock Analysis Report
UTD PARCEL SRVC (
UPS
): Free Stock Analysis Report
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