UPS Is Said to Agree to Purchase TNT Express for $6.8 Billion

By Aaron Kirchfeld, Jacqueline Simmons and Alex Webb - Mar 19, 2012 6:38 AM GMT+0700

United Parcel Service Inc. (UPS) reached an agreement to buy TNT Express NV (TNTE), Europe’s second-largest express delivery company, after sweetening its bid to about 5.16 billion euros ($6.8 billion), two people with knowledge of the talks said.

The price will be about 9.50 euros a share and an announcement will come as soon as today, said one of the people, who declined to comment because they weren’t authorized to speak publicly.

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United Parcel Service Inc. reached an agreement to buy TNT Express NV after raising its bid for Europe’s second-largest express delivery service, according to two people with knowledge of the talks. Photographer: Tim Boyle/Bloomberg

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TNT Express NV employees process incoming and outgoing freight at Liege Airport in Grace-Hollogne, Belgium. Photographer: Jock Fistick/Bloomberg

For Atlanta-based UPS, acquiring TNT will mean achieving roughly equal footing in Europe with Deutsche Post AG (DPW)’s DHL, the region’s biggest delivery operator. For TNT, the deal secures a higher value on the money-losing Dutch company than the 9 euros a share that directors turned down last month.

“They can declare a victory and sign on the dotted line and go home,” said Kevin Sterling, a BB&T Capital Markets analyst in Richmond, Virginia. “If they didn’t do this deal, everyone else would take market share from them in Europe and they would continue to weaken over time.”

TNT closed at 9.35 euros in Amsterdam on March 16, giving the Hoofddorp, Netherlands-based company a market value of 5.08 billion euros, according to data compiled by Bloomberg. UPS, already No. 1 in the world in package deliveries, traded at $78.41 in New York for a $75.2 billion market value.

Company spokesmen declined to comment yesterday.

Deal Valuation

At 9.50 euros a share, the deal would value TNT at 13 times its last four quarters’ earnings before interest, taxes, depreciation and amortization, compared with a median of 10 times trailing Ebitda in nine other similar deals, according to data compiled by Bloomberg.

“That price is a bit ahead of what the shares are trading at currently, so they seem to be getting a bit of a premium,” said Dieter Furniere, a Brussels-based KBC Securities analyst who has a hold rating on TNT.

A mix of cash and debt will be UPS’s likeliest choice for financing, Sterling said yesterday in a telephone interview.

UPS “could practically write a check” because it had about $4.2 billion in cash and short-term investments as of Dec. 31, said Sterling, who recommends buying the stock. “The rating agencies might put them on watch, depending on how much leverage they use, but this is a deal that UPS can easily afford.”

Overlapping operations, particularly in Europe, may produce savings and benefits for UPS worth more than 400 million euros, according to Andre Mulder, an analyst at Kepler Capital Markets in Amsterdam, who recommends buying TNT shares.

European Market Share

UPS controlled 7.7 percent of the European express-parcels market in 2010, compared with TNT’s 9.6 percent, according to Transport Intelligence. Combined, they would be about as large as DHL, which had a 17.6 percent share.

Buying TNT will be the UPS’s biggest purchase since the company was founded in 1907 as a bicycle-messenger service. The deal tops the 2005 acquisition of Overnite Corp. (OVNT) for about $1.25 billion in cash, which gave UPS the ability to make U.S. land shipments of parcels too large to be lifted by a driver.

International packages generate the most revenue for UPS, at $19.30 each in 2011, compared with $9.30 per domestic parcel. The $12.2 billion in sales for that business last year was 23 percent of UPS’s $53.1 billion total, which the company doesn’t disclose on a regional or country-by-country basis.

The final stages of talks played out as investors and unions looked on after TNT said Feb. 17 it rejected a “highly conditional” UPS offer while saying the sides were still meeting. UPS said March 16 that negotiations had been extended.

Unhappy Directors

TNT directors were unhappy with terms attached to the initial offer that may have required divestitures to win regulatory approval, possibly leading to job cuts, a person familiar with the matter said last month.

The company’s four main unions wrote Chief Executive Officer Marie-Christine Lombard and Supervisory Board Chairman Antony Burgmans on March 6 to express opposition to “forced” job reductions. TNT employed about 77,500 people as of Dec. 31.

TNT was spun off in May from the Dutch postal operator, which is now named PostNL and retains a 29.9 percent stake, according to data compiled by Bloomberg. TNT, whose name derives from the postwar Australian company Thomas Nationwide Transport, sold its Indian domestic road business in December and has been hurt by costs from revamping unprofitable Brazilian operations.

Focus on Europe

After posting a 2011 operating loss of 105 million euros on Feb. 21, TNT said it would refocus operations on Europe, where its operating profit was 356 million euros last year. Operating losses were 360 million euros in the Americas and 76 million euros in the Asia-Pacific region.

A bid by UPS or FedEx Corp. (FDX) had been fodder for industry speculation for years as the U.S. companies studied expansion in Europe.

That talk gained momentum following the spinoff of TNT as an express operator, and some analysts and investors had predicted a possible late bid by FedEx after UPS’s interest was announced, a scenario that never came to pass.

In an industry in which UPS, FedEx and DHL already operate on a global scale, TNT was a “once-in-a-lifetime chance” for one of the biggest competitors to grow by gobbling up a substantial rival, Katrina Dudley, a portfolio manager at Mutual Series, a Franklin Templeton Investments unit, said last month. Mutual Series owns TNT shares.

UPS has completed the acquisition of Brussels-based Kiala to bolster operations in Belgium, France, the Netherlands, Spain and Luxembourg, after several smaller purchases in recent years, said David Campbell, a Thompson Davis & Co. analyst in Richmond, Virginia, who recommends buying UPS and FedEx.

To contact the reporters on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net; Alex Webb in Frankfurt at awebb25@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net