UPS Extends Offer on TNT Express - Analyst Blog


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The world's largest package delivery company United Parcel Service, Inc. ( UPS ) announced the extension of its public offer for all the issued and outstanding common shares and American depositary shares of TNT Express until November 9, 2012. Initially, the cash offer price of €9.50 per share was slated to expire on August 31.  

UPS is likely to announce the offer extension within three days of the initial expiry date in accordance with the conditions outlined in the Offer Memorandum dated 21 June 2012. UPS had filed for the European regulatory approval on June 15 and received approval from the executive and supervisory boards of TNT Express. UPS expects the acquisition to close by the end of the fourth quarter this year.

The reason behind the extension was a delay in the European Union (EU) antitrust's decision on the acquisition of TNT Express. The company stated that the review by the European Commission is not expected to be over by the end of this month. In June, news surfaced that UPS is facing a detailed investigation over this deal. The regulators suggested that the takeover would likely reduce competition in the international parcel delivery market, thereby, affecting the end users. It was also reported that the European Commission temporarily stopped its review process over the TNT acquisition.

Should the deal materialize, it would boost UPS' footprint in Europe - particularly Britain, France, Germany and the Netherlands - consolidating its position as a 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  by providing an edge over its rival FedEx Corporation ( FDX ).

The combined company will generate about 36% of revenues outside the U.S., up from the current 26%. UPS projects the transaction to be earnings accretive in the first year and to generate pre-tax cost synergies of €400 million  to €550 million ($525 million - $725 million) by the end of the fourth year after completion (i.e. 2015). Furthermore, UPS intends to deliver a return on invested capital of at least 25% by 2014 upon the successful integration of TNT.

However, the company will incur one-time pre-tax costs of a billion euros 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. Furthermore, UPS has to pay €200 million to TNT in an event of termination of the deal.

In addition to TNT Express, UPS has been working overtime to expand its operations in Europe through smaller acquisitions. In February 2012, UPS announced the purchase of a Belgian e-commerce company, Kiala. In December 2011, the company acquired Italian pharma logistics provider Pieffe Group to enhance its position in North and South America, Europe and Asia.

We, currently, have a long-term Neutral rating on UPS. For the short term (1-3 months), the stock retains a Zacks #4 Rank (Sell).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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