UPS earnings

UPS Acquiring TNT Express For $6.77 Billion

UPS Acquiring TNT Express For $6.77 Billion

Last week I wrote about the possibility of a UPS (NYSE:UPS) buyout of TNT Express (AMS:TNT).  I cited a number of positives for UPS and TNT shareholders. United Parcel Service, Inc. (NYSE:UPS) would gain further control in Europe while TNT (AMS:TNT) shareholders will get some value out of their holding.  Overall I considered the possibility of a buyout to be very positive.  It is also note worthy that this is the largest acquisition made by UPS in the company’s 104 year history.

On Monday, news broke that TNT finally accepted UPS’s proposal after previously turning down the offer.  As of now the deal says that UPS has acquired TNT Express for $6.77 billion.  That is a 54% premium to the close on February 16th.  Post NL NV who has a 29.8% control over TNT Express has said they will vote for the deal.

It is expected that the deal will create a shipping network in Europe capable of reeling in $60 billion annually.  Also, this will bump up UPS’s revenue outside of the US from 26% to 36%.  However, the benefits aren’t limited to Europe.  UPS will be able to strengthen its networks in high-growth, Asian and Latin American markets.  Analysts are saying that this buyout wasn’t so much an investment intended for the European markets but rather the emerging market countries such as China, Middle East, Latin America, Australia, etc.

There is some downside to the deal and the main unpleasant point of the deal was the cost.  UPS paid a hefty price for TNT Express which may hurt in the short term but will yield great results over the long term.  Next, if the European debt crisis worsens then UPS could be out a nice chunk of change.  However, UPS has a dominating role over the marketplace.  In Europe, for instance, Fedex only has a market share of 3% and UPS intends on investing 1 billion additional euros over a period of four years to further integrate and expand TNT.

As I had previously speculated, this deal is going to do wonders for UPS’s business over the long term.  I am not 100% excited that they paid such a huge premium but ultimately when we look back at this deal, I think we will say that it was worth it.  There is just so much growth here for UPS now in emerging markets that I believe the premium was worth it.


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