“It’s déjà vu all over again.” Or is it?
Do the words of the famous American philosopher Yogi Berra apply to FedEx’s offer to buy TNT? Or is it significantly different from UPS’ attempt to do the same thing two years ago? (An attempt that was torpedoed by the European Commission on the grounds that it would negatively impact consumer choice.)
Other than the number on the price tag, the FedEx/TNT agreement announced today is effectively the same as the UPS/TNT agreement announced in late 2012.
- The offer (€8.00 per share by FedEx, €9.35 by UPS) represents a premium over TNT’s pre-offer share price
- The transaction is supported by TNT’s Executive Board and Supervisory Board
- PostNL N.V., TNT’s biggest shareholder, will support the deal and tender its shareholding
- The European headquarters of the combined companies will remain in Amsterdam/Hoofddorp
- TNT Airways will be divested, as required by EU law
So why do FedEx and TNT think this acquisition will be approved, when the almost identical acquisition offer by UPS was blocked? The answer is simple and straightforward: Because FedEx has a far less significant share of the European express delivery market than UPS had.
As things now stand, the biggest players in the European express market are DHL (19% market share, according to ING), UPS (16%), TNT (12%), and FedEx (5%). FedEx and TNT feel that forming a single entity with a 17% share would not change the competitive landscape enough to cause the EC to block the deal. A UPS/TNT tie-up, on the other hand, would have eliminated competition between two major players and created a single dominant entity with an almost 30% market share.
Of course, the other big question is, why does FedEx want to acquire TNT in the first place? The answer to that is also relatively straightforward: Because it would give FedEx a much bigger share of the European express market, at a price it thinks is worth paying.
It is this last part that is the key. Since the failed UPS acquisition, TNT has struggled, and its share price has fallen, but it still has a significant share of the European express market, and an excellent European road network. At the same time, the US dollar has appreciated strongly against the euro. So, in FedEx’s eyes, a potential asset that has looked good for some time has recently become much more affordable. And for struggling TNT, the deal is as close to a no-brainer as possible.
Now we all wait for the EC.
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