U.S. shipping giant UPS has scrapped plans to grow in Europe through the acquisition of Dutch delivery company TNT Express because European regulators were getting ready to reject the $6.9 billion deal.
The deal would have been the largest acquisition in UPS history.
UPS had offered in March to buy TNT, Europe’s second-largest delivery company, to better compete with Europe’s largest shipper, Deutsche Post’s DHL. Regulators objected, saying the deal would reduce competition in the market for express delivery of small packages in Europe. UPS said Monday that it had proposed “tangible remedies,” but after meeting with regulators on Friday, the Atlanta company told TNT it saw no prospect of the deal being approved.
UPS CEO Scott Davis said in a statement Monday that he was “extremely disappointed” with the stance taken by regulators. Shares of United Parcel Service Inc., the world’s largest package delivery company, actually rose $1.32 to $79.42 in trading in New York Monday. Analysts said UPS could still pursue smaller acquisitions and also might boost its dividend or take some other action to reward shareholders.
By contrast, TNT shares plunged in Europe, losing as much as half of the company’s paper value after news broke that the deal was off. Although it will receive a $265.5 million breakup fee from UPS, TNT faces an uncertain future on its own. The 42 percent drop in its share price wiped off nearly $2.67 billion from its market value.
The European Commission, which would not comment, must publish its review of the deal by Feb. 5.
The commission reviews major corporate mergers and acquisitions to ensure they do not hurt fair competition in the market. It has the power to block deals or to demand concessions, such as the sale of business parts, to safeguard market balance.
UPS had earmarked $5 billion in cash for the purchase of TNT. Sterne Agee analyst Jeffrey Kauffman said he expected the company to now use some of that for dividends or share buybacks. He said UPS could also pursue smaller acquisitions, especially in Asia.
Jim Corridore, equity analyst for S&P Capital IQ, said UPS can still “build a stronger network in Europe through smaller acquisitions and internal growth.”
Before UPS jumped in, some analysts thought rival FedEx Corp. might make an offer for TNT, but FedEx executives said in March they had no plans to do so.
U.S. analysts don’t expect FedEx to reconsider in the near-term because it’s in the midst of a major restructuring of its Express air cargo service.
• David Koenig reported from Dallas. Toby Sterling reported from Amsterdam.
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