The largest parcel delivery company,
United Parcel Service Inc.
(
UPS
) foresees a delay in its mega acquisition, TNT Express. The
company expects the deal to accomplish in early 2013 instead of its
previous anticipation of fourth quarter this year.
The company also formally confirmed the extension of its public
offer period for all the issued and outstanding common shares and
American depositary shares of TNT Express till November 9, 2012.
The request for an extension of the European Commission review
period for ten working days, to which United Parcel and TNT Express
have given their mutual consent, on the acquisition of TNT Express,
is the key reason for delaying the completion of the
acquisition.
In an event where the current offer period lapses without
receiving all the regulatory approvals, the company would request
for an exemption from the Netherlands Authority for the Financial
Markets (AFM) for the extension of the offer period. This implies
that the initial offer will no longer be valid and shares tendered
under the current offer will be withdrawn. However, shares that
have been tendered but not withdrawn in the initial offer remain
subject to the Offer.
In June, news surfaced that UPS is facing a detailed
investigation into 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 a one-time pre-tax cost 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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