UPS to Secure TNT Deal by Unit Sale

United Parcel Service Inc. (UPS - Analyst Report) is planning to sell TNT Express’ assets to the European Union to meet the antitrust requirements for the completion of the impending acquisition of the latter. The two companies have reportedly decided upon selling TNT business units to 13 countries of the European Union and provide access to UPS’ networks in order to secure the $6.8 billion acquisition deal.

The divestiture, which will resolve UPS’ acquisition-related concerns, is now subject to customer and competitor feedback. It will also help the European Commission in giving the green signal to the biggest deal in the 105-year history of UPS.

UPS has been fighting a long battle with the antitrust regulators and has already pushed the timeline for the deal closure twice. UPS filed for the European regulatory approval on June 15 and hoped for the deal to be over by the end of this year. However, the latest reports indicate that completion dates have been postponed to February 2013 due to regulatory hurdles.

The main concern in approving the TNT acquisition is the impact that it would have on market competitiveness. If the deal materializes UPS is will emerge as the biggest player in delivery business in the European continent, leaving only two other big peers – DHL Express and FedEx Corporation (FDX - Analyst Report).

Further, the deal would consolidate UPS’ position as a global leader in the International market with annual revenues of more than €45 billion ($60 billion). Regulators fear that the deal might bring in unfair competition affecting pricing policies and services, ultimately impacting end-users.

However, we remain hopeful that UPS’ plans to safeguard this mega acquisition would add some pace to the whole legal process. Further, in the coming days, we can expect some clear insight on the direction towards which the deal is actually heading.

Besides TNT Express, UPS has been working over time to enhance its operations in Europe through smaller acquisitions. In February 2012, UPS announced the purchase of a Belgian e-commerce company, Kiala. In December 2011, the company acquired Italian pharma logistics provider Pieffe Group to enhance its position in North and South America, Europe and Asia.

UPS retains a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating. For the long term, we have a Neutral recommendation on the stock.