Can FedEx/TNT deal succeed where UPS failed?

As FedEx and TNT Express work out the details of their planned €4.4 billion merger, echoes of a similar deal between UPS and TNT that was doomed in 2013 were instantly brought to mind. But this time around, both FedEx and TNT believe the antitrust concerns of two years ago will not play a major role in the European Union’s judgment of the acquisition.

The UPS deal was shot down in 2013 because regulators in the European Commission thought it would stifle competition in the express cargo market. FedEx, however, has a much less extensive operation within Europe than UPS does, so the competitive situation with a FedEx/TNT merger is much less likely to raise concerns with regulators.

According to the latest figures from ING, as reported by Reuters, analysts estimate that the largest player in the European express market is Deutsche Post’s DHL, with a market share of 19 percent. UPS is a close second, at 16 percent, followed by TNT with 12 percent. In comparison, FedEx is far back in the pack at just 5 percent.

If approved, a merged FedEx/TNT could leapfrog into second place in market share, creating a three-way race for dominance with DHL and UPS. “FedEx and TNT Express are confident that anti-trust concerns, if any, can be addressed adequately in a timely fashion,” read a joint statement from the two parties.

As part of the proposed takeover bid, TNT must divest itself of two of its airlines – Belgium-based TNT Airways and Madrid-based Pan Air Lineas – to comply with EU regulations stipulating that foreign ownership in a European company cannot exceed 49 percent. While no bidder for the two carriers has yet been announced officially, FedEx said that Ireland-based ASL Aviation Group, which had agreed in 2012 to purchase both airlines while the UPS/TNT deal was being hammered out, will most likely be in the running again this year.

Currently, neither FedEx nor TNT have determined the final branding of the merged venture, but the joint statement said the name TNT Express will be “maintained for an appropriate period” and that the TNT Express group “will remain prudently financed, including with respect to the level of debt, to safeguard business continuity and to support the success of the business.”

Fred Smith, chairman and CEO of FedEx Corp., said the proposed transaction, combining FedEx’s extensive air network with TNT’s significant ground coverage, will allow the integrator to “quickly broaden our portfolio of international transportation solutions to take advantage of market trends – especially the continuing growth of global e-commerce.”

FedEx, which has an estimated market capitalization of US$47 billion, said it will finance the acquisition via available cash resources and by existing and new debt arrangements. Both FedEx and TNT said they anticipate closing the deal by the first half of calendar year 2016.

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