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UPS drops E5.2bn TNT bid ahead of EU veto

Sara Webb and Anthony Deutsch Amsterdam

United Parcel Service (UPS) would drop its e5.2 billion (R60bn) bid for Dutch delivery firm TNT Express, the world’s largest package delivery company said yesterday.

This was due to the expectation of an EU veto, a sharp blow that halved the value of TNT’s shares within minutes.

US-based UPS had sought to buy the Dutch firm to gain access to its European network and business in fast-growing Asia and Latin America.

The collapse of the deal is particularly damaging for TNT, which has struggled to turn around in a weak European market and will have trouble regaining market share, believed to have been eroded during the talks with UPS. The plunge in its share price wiped more than e2bn off its value.

UPS would also have to adjust to the loss of opportunity, said Philip Scholte at Rabobank. “This is going to make it hard for UPS to increase its position in Europe on its own.”

UPS and TNT said the European Commission, the EU’s executive body, had told the two firms it was working on a decision to prohibit the proposed acquisition, leaving them no choice but to abandon it.

“UPS will pay TNT a termination fee… of e200 million and will withdraw the offer,” once the formal decision is taken, UPS said yesterday.

The commission declined to comment. European Commission competition policy spokesman Antoine Colombani said the decision would be taken in “due time” with a deadline of February 5.

TNT has been forced to cut capacity in Europe in response to falling demand, was hit by restructuring problems in Brazil, and is considered a minor player in China. Its chief executive quit soon after UPS made its offer.

TNT shares fell to e4.051 yesterday morning, compared with the UPS offer price of e9.50 a share.

“This is a big disappointment of course. The market had discounted the shares slightly below the offer price, but everyone had thought they would be able to work something out,” Scholte said.

After focusing on the deal for nearly a year, TNT will have to find a new boss and set out a new business plan. The deal was initially expected to close in the third quarter of 2012.

TNT said it would give an update on its strategy in due course.

A new merger seems unlikely, at least in the short term.

Its closest European rival, Deutsche Post’s DHL, is bigger in Europe and would be unlikely to get European approval for an acquisition.

“America’s FedEx is the only other option and they are not going to be in any hurry because there is simply no rival bid,” Maarten Bakker, an analyst at ABN Amro, said.

The US delivery company had offered various concessions in a bid to win EU regulatory approval for its bid, including a proposal to sell warehouses and customer bases in about 15 countries, mainly in eastern Europe.

“We proposed significant and tangible remedies designed to address the European Commission’s concerns with the transaction,” said Scott Davis, the chairman and chief executive of UPS, expressing disappointment at the decision after months of talks.

“The combined company would have been transformative for the logistics industry, bringing meaningful benefits to consumers and customers around the world, while supporting growth in Europe in particular,” Davis added.

Shares in PostNL, TNT’s biggest shareholder, which had been counting on using proceeds from the deal to pay a dividend, also plunged by a third on the news. – Reuters

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