European Commission torpedoes UPS acquisition of TNT Express

In a decision that seems ill-informed and which may ultimately prove to be counter-productive, the European Commission notified UPS that “it is working on a decision to prohibit the proposed acquisition of TNT Express.” The decision itself does not come as a surprise. The EC’s Competition Commissioner Joaquin Almunia has made it clear almost from Day One that he was against the €5.2 billion acquisition, and every time UPS and TNT made concessions to meet his demands, he simply added more demands.

UPS first announced its plans to acquire TNT last March.

Of course, this anti-trust investigation by the European Commission was not a simple matter. The European Commission has every right – in fact, has a duty – to ensure that EU citizens are not subjected to monopolistic business practices. When an acquisition of this magnitude is proposed, the Commission is bound to scrutinize it. Likewise, other players in the business sector in question owe it to their shareholders to actively oppose (or support, as the case may be) such a deal. In this case, it has been quite reasonable for DHL and FedEx to raise objections. UPS would probably have done the same if the roles were reversed. But the Commission’s approach seems almost to have been one of “decision first, hear the evidence later.”

But, process aside, what of the outcome? While the EC’s prohibition of the acquisition is aimed at keeping the level of competition high, it may ultimately have the opposite effect. TNT has not done well of late. It is losing money on its Asia Road Network, and on its operations in Latin America. Its air network is struggling, and, having lost two CEOs in the last two years, it lacks strong leadership. So, while the decision to block the UPS takeover may keep the number of major players in the European express business greater by one in the short term, it is not clear that TNT will survive on its own. How does that improve the lot of the EU citizen or company that wants to ship a package?

Early response to the decision in the financial markets has been savage, with TNT’s stock down almost 50% since the news broke this morning, and some analysts have been outspoken in their criticism of the EC. For example, Joel Ray, head of consultancy at UK-based Transport Intelligence, was quoted as saying: “The EU seems to have no understanding of how the sector operates and how complex it is. It clearly doesn’t understand, and sees problems that don’t exist.”

At the root of the issue is the fact that TNT Express was created almost entirely for the purpose of being taken over. It was spun out from Netherlands-based mail and express company TNT NV as a separate market entity because shareholders felt that a takeover was the best way forward. But now that the EC has closed the door on that possibility, the future of TNT Express is unclear. Will it try to compete worldwide with DHL, FedEx and TNT? Or withdraw inside Fortress Europe as a ground transport specialist? One factor is sure: whatever TNT’s plans, they will not involve another express company – at least for now.