Tags: tnt | ups | fedex | delivery | m&a

TNT Express Investors Hold out for Higher Bid

Monday, 20 February 2012 01:02 PM

Investors in Dutch freight and delivery firm TNT Express are pressing for a higher offer from U.S.-based United Parcel Service, driving shares up more than 60 percent to an all-time high on Monday.

TNT said on Friday it had rejected an offer from UPS, the world's largest package delivery company, of 9 euros per share which valued the company at 4.9 billion euros ($6.45 billion), but that both companies were still in talks.

A source close to the talks said shareholders wanted to sell their stock and hoped to get between 9.5 and 10 euros per share for a company which offers Atlanta-based UPS a bigger presence in Europe. Some TNT investors had called for a management change because of poor revenue, profits and share price performance.

"Everyone is expecting a higher bid," SNS fund manager Corne van Zeijl said on Monday, adding that rival FedEx may enter the fray. He said he expected UPS would win the prize.

"FedEx can possibly come with an offer. Ten euros per share is possible. Because FedEx is smaller they can finance it less easily."

Van Zeijl said he was holding out for as much as 11 euros per share.

Dutch post firm PostNL, which is TNT's biggest shareholder with a 29.9 percent stake and holds the key to any talks with a buyer, declined to comment.

TNT shares hit an all-time high of 10.24 euro, up more than 60 percent from Friday's closing price of 6.343 euros. The stock closed at 10.18 euros.

Analysts say UPS has long harboured an interest in TNT, which would help it expand in Europe, especially in Britain, France, Germany and the Netherlands, as well as in fast-growing Asian markets.

"The first time UPS looked at TNT was about 15 years ago. At that time, TNT was 'a must have'. Now it is 'nice to have'," said a sector banker familiar with the U.S. firm's thinking.

"Still TNT remains a 'once in a decade opportunity' for a player like UPS."



About two-thirds of TNT's revenue is from European customers, but it also has been steadily growing in China, Brazil and India. UPS would also be taking out a European rival that has shown a willingness to undercut competitors on price.

However, the Dutch package delivery firm, the smallest of the four world leaders in sending goods and documents swiftly around the globe, faces tough price competition on its key routes, a recession in its core European market, and problems in Brazil, where it has struggled to integrate its acquisitions.

TNT's revenue has declined as the weak global economy spurred customers to seek cheaper shipping options. Some analysts said it was not big enough to compete with the world's major delivery companies.

The combined group would have a dominant position in some markets, such as Britain, and would have to divest assets, some bankers and analysts said. TNT is the domestic market leader in Europe with an 18 percent share, while Deutsche Post DHL is second at 15 percent, and UPS has 10 percent.

"It is likely that UPS will have to divest in the UK if it acquires TNT Express," André Mulder, analyst at Kepler Capital Markets, said.

"According to my estimates, UPS and TNT Express have a combined market share of 35 percent in the UK. Usually competition authorities regard a market share of more than a third as critical," he added.

Mulder said he does not expect any competition-related problems for UPS in Germany, France or the Netherlands.

"In Germany and France, UPS and TNT Express have a combined market share of about 30 percent. In the Netherlands it is even below 30 percent, as UPS is quite small here," Mulder said.

The source close to the talks said that antitrust laws were a potential hurdle but not a deal-breaker. But rival Deutsche Post said on Monday it expected regulators would have concerns about a combined group.



A collective of Dutch trade unions said in a statement on Friday they would evaluate potential bids for TNT to ensure they did not lead to a loss of jobs and would guarantee operations in the Netherlands, including a headquarters in Hoofddorp on the outskirts of Amsterdam and close to Schiphol airport.

Antony Burgmans, chairman of TNT's supervisory board, told Dutch newspaper Het Financieele Dagblad that the decision to reject UPS's offer was about more than just price.

"It isn't clear how the European Commissioner for Competition will view this," he told the paper, adding that TNT wants guarantees on jobs.

Credit Suisse noted that under TNT's articles of association, its foundation has the option to defend the company against a bid.

"However, we do not expect it to engage in such actions given our expectation of broad shareholder support for a deal," Credit Suisse said in a research note.

TNT was spliced off from PostNL last year to try to ringfence the more attractive express delivery operations from a traditional post business that is in decline in the age of electronic mail.

Shares in PostNL rose 46 percent on Monday. PostNL has taken impairments of more than 700 million euros on its stake in recent months as shares in TNT dropped from a high of 10.20 euros on May 10 to a low of 4.46 euros on Oct. 6.

TNT's poor performance in terms of revenue, profit, and share price has led investors such as U.S.-based Jana Partners to call for a shake-up.

Jana Partners together with Canada's Alberta Investment Management Corporation (AIMCO) has a combined stake of just over 5 percent. It has pushed for a new chief executive, a stronger supervisory board and a turnaround in performance, whether as part of a bigger group or as an independent company.

So far, those investors have refrained from commenting on the UPS offer, but bankers said their response is crucial.

"I would expect them to vocally ask for a higher price, push TNT's board to strike a deal around 9.5-10. One sure thing is that they clearly don't want UPS to walk away," said one banker.

($1 = 0.7597 euros)

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Monday, 20 February 2012 01:02 PM
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