UPS Jumps on TNT Express Acquisition
UPS (NYSE: UPS), the largest mail and logistics company in the United States, announced a 1.16 billion euro, or $6.8 billion, acquisition of Dutch package shipper TNT Express before the opening bell on Monday. The deal comes after a lower UPS bid was turned down last month. TNT accepted the sweetened 9.5 euro per share cash bid after previously turning down a 9-euro offer. This represents a 54% premium over the price of TNT shares on February 16, the day prior to the deal talks becoming public.
Wall Street is showing its approval for the transaction by pushing up UPS shares 3.32% to $81.01 during Monday's session. The acquisition will help the company expand its European footprint and better compete with market leader Deutsche Post's DHL, the leader on the continent. UPS expects that the deal will produce pretax cost savings of between 400 million to 550 million euros a year within four years. Wall Street analysts have been almost universally bullish on the deal in commentary from Monday morning.
“We like that the deal increases UPS' non-U.S. revenues, and expect Europe, currently depressed, to eventually provide a strong growth engine,” James Corridore, a Standard & Poor's equity analyst in New York, said in a note to clients. Corridore reiterated his "buy" rating on the stock.
J.P. Morgan (NYSE: JPM) analyst Thomas R. Wadewitz raised his UPS price target to $92 a share from $88 and moved his rating of the stock from "neutral" to "overweight" on an expected rise in operating profits.
"We expect significant [earnings per share] accretion in 2013 and 2014 from the TNT Express deal and we also view it as a strategic positive in terms of boosting UPS's global footprint," wrote Wadewitz in a client note.
The analyst added, "In our view, the deal is a significant strategic positive for UPS because it will vault UPS from a #3 position in most European markets to #1 or #2 positions. We would expect the deal to strengthen UPS's global small package network and also significantly broaden its base of European customers."
By acquiring TNT Express, UPS is moving aggressively to expand its international revenue mix and international sales are expected to rise from 26 percent of total revenue to 36 percent in the wake of the transaction. Chief Financial Officer Kurt Kuehn said that the company hopes to grow that number to 50 percent within five years. He added that the TNT acquisition was attractive because the company has "operations in areas where we're underserved. Brazil. Australia. The Middle East. The road and train network in Europe."
The acquisition is the largest ever in the history of UPS. The company does not expect for there to be any opposition to the proposed deal from antitrust regulators as TNT does not have a large U.S. presence and the European delivery market is highly fragmented. The new company will have roughly a 16 percent share of the European market which would put it in second place on the continent behind DHL.
A higher competing bid for TNT is possible, but the most likely alternative suitor for the Dutch company, FedEx (NYSE: FDX), has not shown any interest up to this point. If TNT were to break off the deal with UPS, it would have to pay a 50 million euro fee, and conversely, if the transaction does not gain regulatory approval, UPS would have to pay TNT 200 million euros.
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