TNT Express NV (TNTE) agreed to sell its airline operations to ASL Aviation Group Ltd. in an effort to safeguard a deal to combine with United Parcel Service Inc. (UPS:US)
The transaction is conditional on the completion of UPS’s proposed 5.16 billion-euro ($6.58 billion) purchase of TNT, the Hoofddorp, Netherlands-based the package-delivery company said today in a statement. Financial terms were not disclosed.
TNT stock has been trading at a discount to UPS’s 9.50- euro-a-share offer price as investor skepticism of the deal grows. Since announcing the purchase on March 19, Atlanta-based UPS has twice pushed back the target date to complete the biggest acquisition in its 105-year history as the regulatory review continues.
“This is an important step towards completion of the proposed UPS-TNT Express merger and a positive outcome for the airline employees,” Bernard Bot, interim Chief Executive Officer of TNT Express, said in the statement.
TNT will sell 100 percent of TNT Airways and Pan Air Lineas Areas SA to ASL, which operates 90 aircraft offering freight and passenger services, the company said.
“This change of ownership and control will ensure service continuity of the TNT Express operations after the completion of the proposed merger,” the company said today in the statement on its website.
TNT stock jumped as much as 4 percent, the most since it announced it was in takeover talks with UPS in February, and was trading 1.5 percent higher at 7.07 euros as of 9:33 a.m. in Amsterdam. That values the company at 3.8 billion euros.
The future of TNT’s air operations had been called into question by the deal since companies from outside the European Union may not hold stakes above 49 percent in airlines.
“It is definitely a short-term positive,” Zurich-based Credit Agricole analyst Beat Keiser, who rates TNT Express underperform, said by telephone. “It will be business as usual, because of the guarantee they’ve given. There were probably a few interested parties, but that they’ve found a buyer is positive.”
Aside from the airline sale, UPS is seeking to avoid concessions that would stymie its plan to double operations in Europe with the acquisition of TNT. The American company presented its case to European Commission officials in Brussels on Nov. 12.
European Competition Commissioner Joaquin Almunia said that the deal raises “serious competition concerns” in a Nov. 2 speech. The wording echoed remarks he made in January before the collapse of Deutsche Boerse AG’s merger with NYSE Euronext.
UPS’s merger agreement requires it to make “best efforts” to secure regulatory clearance and offer “reasonably satisfactory” concessions. It will pay a breakup fee to TNT of 200 million euros if it pulls out.
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