United Parcel Service Inc. (UPS:US) will pursue smaller European acquisitions and growth in its own business after its 5.16 billion-euro ($6.9 billion) purchase of TNT Express NV (TNTE) fell apart, people familiar with the matter said.
The world’s biggest package-delivery company learned in a Jan. 11 meeting with the European Commission that the deal would be rejected, said the people, who asked not to be identified because the plans aren’t public. That triggered a weekend of planning sessions in which Atlanta-based UPS decided to abandon the transaction, the people said.
Seeking targets smaller than Hoofddorp, Netherlands-based TNT may help UPS avoid regulatory challenges like those that thwarted what would have been the biggest deal since its founding in 1907. UPS has operated in Europe for 35 years and is spending $200 million to expand its air hub in Cologne, Germany.
“They will probably look to doing smaller tuck-in acquisitions or growing in Europe on their own,” said Helane Becker, an analyst at Dahlman Rose & Co. in New York, who recommends holding UPS shares. “Not as rapidly as the TNT Express acquisition would have done, but the growth is there.”
UPS has no immediate purchases planned in Europe, according to one of the people familiar with the company’s strategy. The TNT acquisition had been announced in March, and UPS proposed concessions three times to the European Commission in hopes of winning approval, the person said.
The U.S. company’s previous acquisitions in the region include Brussels-based business-to-consumer delivery firm Kiala in 2012 and Italian pharmaceuticals-logistics provider Pieffe Group in 2011. In 2009, UPS bought a majority stake in a joint venture with Turkey’s Unsped Paket Servisi San ve Ticaret AS to boost operations in the Middle East and Central Asia.
TNT will get a 200 million-euro termination fee from UPS following formal rejection of the combination, the biggest to fail in Europe since BAE Systems Plc and European Aeronautic, Defence & Space Co. called off a merger in October.
The payout probably will go to strengthen TNT’s balance sheet rather than being distributed as a special dividend to shareholders, said Cyrille Gibot, a company spokesman.
UPS rose 1.7 percent to $79.24 at the close in New York, while TNT, which was spun off from PostNL in 2011, fell 41 percent to 4.84 euros in Amsterdam.
EU Competition Commissioner Joaquin Almunia will reach a decision on the case by Feb. 5, said Antoine Colombani, a spokesman. The rejection of takeovers is rare, and since taking up his role in 2010, Almunia has blocked only the $9.5 billion takeover of NYSE Euronext by Deutsche Boerse AG and a bid by Aegean Airlines SA to merge with Olympic Air SA.
“I’m surprised that the deal is not going through,” said Philip Scholte, an analyst at Rabobank International in Utrecht, the Netherlands. “There’s quite a bit of competition in the express market and still the European Union continues to be very strict.”
UPS Chief Executive Officer Scott Davis said he was “extremely disappointed.” TNT would have doubled UPS’s European business and given it a regional market share similar to Deutsche Post AG (DPW)’s DHL, the region’s top express operator.
UPS had revised its proposed concessions twice, most recently in the first week of January, to include the sale of assets and access to its air network for competitors, one person familiar with the matter said. The initial remedies package was submitted to the European Commission in late November, with the first revision happening just before Christmas, the person said.
The European Commission sought to create a company of a similar size to TNT to fill the void being left by a UPS takeover, Almunia told reporters last week.
The deal will be formally terminated once the “inevitable” prohibition ruling has been received, TNT said. The Dutch company added that it “regrets this situation, having believed the merger was feasible and beneficial for all stakeholders.”
Deutsche Post was “quite relaxed” about whatever the European Commission decided, Chief Financial Officer Larry Rosen said today in an interview at Bloomberg world headquarters in New York. “We’re focusing very much on our business and organic growth. We’ve been successful in gaining market share in Europe in recent quarters and feel very good about our position.”
UPS had agreed to buy TNT for 9.50 euros a share on March 19 last year after sweetening its bid from the 9 euros turned down the previous month. TNT stock closed at 6.34 euros on Feb. 17, the last day of trading before the talks were made public.
Morgan Stanley, UBS AG and Bank of America’s Merrill Lynch unit were financial advisers for UPS. TNT Express worked with Goldman Sachs Group Inc. and Lazard Ltd. advised the Dutch company’s supervisory board. Freshfields Bruckhaus Deringer LLP was UPS’s legal adviser and Allen & Overy LLP worked with TNT.
FedEx Corp. (FDX:US), the second-largest package-delivery company, was briefly regarded as a potential suitor for TNT after the rejection of UPS’s initial offer, and the Memphis, Tennessee- based business’s interest may now be reignited, said Andre Mulder, an analyst at Kepler Capital Markets in Amsterdam.
“As a matter of policy, we do not comment on corporate development matters,” Jess Bunn, a FedEx spokesman, said in an e-mailed statement.
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