| 3/19/2012 | ||
| Source: Law360 | ||
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United Parcel Service Inc. said Monday it will pay $6.8 billion for Netherlands-based carrier TNT Express NV, a move that would create the biggest carrier in Europe and could raise red flags for antitrust regulators, industry watchers said.
A tie-up with TNT would more than double UPS' market share in Europe and expand its reach in emerging markets in Asia and Latin America. It would also unseat Deutsche Post DHL as reigning European carrier, giving UPS a 17.7 percent share of the continent's delivery services.
Deutsche Post has already cried foul, saying on Monday it sees "significant regulatory issues, in particular antitrust" with the proposed merger, which came after an earlier $6.4 billion offer was rejected by TNT's board in February.
"DHL has already raised some antitrust concerns, and rightly so," said Kevin Sterling, an equity analyst with BB&T Capital Markets. "I think we'll see UPS make some divestments in Europe to stay ahead of it."
A spokesman for the European Commission said Monday he could not comment because the commission had not been officially notified about the deal.
The EC has rarely blocked deals — the proposed merger of Aegean Airlines and Olympic Air in January 2011 was just the second time it has done so since 2004 — but has been dialing up scrutiny in recent years, said Pierre-André Dubois, the partner in charge of Kirkland & Ellis LLP's UK competition group.
"Even in routine cases, they are asking more questions," he said. "And a deal of this size, where you're talking about creating a new market-leading company, I wouldn't expect it to be a routine case."
TNT is the world's fourth-biggest parcel carrier and has a 10 percent market share in Europe, according to industry tracker Transport Intelligence. UPS currently controls 7.7 percent of the European market. Together, they would edge past DHL, which has a 17.6 percent market share.
With six international ground parcel carriers, Europe's carrier market is more fragmented than North America's, in which there is a duopoly enjoyed by UPS and FedEx Corp.
UPS will gain access to TNT's customers and fleets in fast-growing markets in Asia and Latin America, including Brazil and Australia, where UPS does not have operations. The merged company would have annual revenues of around $62 billion and would carry about half of all global packages, according to industry data.
"This broadens UPS's global footprint," UPS CEO Scott Davis said on an investor conference call on Monday. "The combined company is built to perform."
Davis said it would cost about $1 billion over four years to integrate TNT into its European operations, a move that would eventually save up to $725 million per year in cost synergies.
The two companies have flirted with a merger for almost a decade, but discussions did not really take off until TNT spun off its mail delivery arm last year. That business, now called PostNL, was a major player in the Netherlands' privatized postal service, but not a selling point for UPS, Sterling said.
Serious negotiations began in November and TNT rejected UPS' first $6.4 billion offer on Feb. 17. The sweetened, all-cash bid represents a 54 percent premium over TNT's stock price on Feb. 16, the day before the ongoing talks became public.
The deal is expected to close in the third quarter of this year. UPS is financing the deal out of a mix of $3 billion in cash and bank loans.
UPS is represented by Freshfields Bruckhaus Deringer LLP.
TNT is represented by Jan Louis Burggraaf, Tim Stevens, Paul Glazener, Katinka Middelkoop and Lucas Brabers of Allen & Overy LLP and by Goldman Sachs International as financial adviser.
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