UPS Faces Hurdles in TNT Deal

The much awaited United Parcel Service Inc. ( UPS - Analyst Report ) and TNT Expressdeal suffered a setback with glitches in the disposal of assets. Market reports suggest that UPS’ biggest rival FedEx Corporation ( FDX - Analyst Report ) has shown no inclination to buy TNT assets. Though nothing has been reported officially, UPS has been making efforts through informal channels to persuade FedEx to buy certain assets of TNT to secure the deal.

In December, it was reported that UPS is contemplating 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 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 will emerge as the biggest player in delivery business in the European continent, leaving only two other big peers – DHL Express and FedEx

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 into the direction towards which the deal is actually heading.

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.