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United Parcel Service (UPS - Free Report) is still negotiating the acquisition of TNT Express, the Dutch package delivery company. United Parcel’s preliminary bid of €9 per share, or €4.9 billion ($6.45 billion) in total, was rejected, but the company still hasn’t given up hope on Europe's second-largest express delivery company.

UPS made the proposal nine months after TNT spun off from PostNL and suffered persistent market share loss. If successful, the takeover will make UPS an undisputed leader in the emerging markets of Europe, China, Russia, Brazil and India.

UPS, the world's largest package delivery company, is already spreading in Europe through smaller acquisitions. In December, the company acquired Italian pharma logistics provider Pieffe Group to enhance its position in North and South America, Europe and Asia. Earlier this month, UPS announced the purchase of a Belgian e-commerce company, Kiala.

TNT Express is the market leader in Europe with an 18% market share and moves 4.7 million parcels, documents, and pieces of freight every week to more than 200 countries. Since the spin-off, TNT Express has lost over 50% of the market value amid profit warnings and continuing operational issues at the TNT Express business.

As a result, investors are loosing faith in TNT's ability to create value for shareholders. Thus, we believe UPS needs to reconsider its decision to buy TNT given the threats of recession in Europe and a slow moving U.S. economy.

Nevertheless, TNT Express gained ground on the last trading day and surged more than 60%.

According to the available sources, there is no guarantee that the potential acquisition would take place as TNT is seeking a higher bid from UPS. Besides UPS, FedEx Corporation (FDX - Free Report) is considered as the most suitable suitor for TNT. But FedEX has till now shown very little interest in the company as it has the smaller presence in Europe.

We are currently recommending our long-term Neutral rating on UPS. For the short term (1–3 months), the stock retains a Zacks #3 Rank (Hold).

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