United Parcel Service, Inc. (UPS - Analyst Report) saw a disappointing end to its $6.8 billion proposed acquisition of Dutch shipping company, TNT Express. Challenged by the European regulators’ dejection with the proposed acquisition, the company finally dropped its plans to acquire TNT.
This set back remains a big jolt for the company’s aspirations to grow in the European continent. Further, the company now remains exposed to charges of $265.5 million to be paid to TNT due to the termination of the agreement with the previously stated terms and conditions.
In March 2012, UPS confirmed that it would acquire TNT Express, representing the biggest acquisition in the 105-year history of the company. UPS filed for the European regulatory approval on June 15, 2012 and hoped the deal to be over by the end of 2012.
Before the deal could come through, it got entangled into the regulatory web of the commission. The failure of the commission to deliver any verdict only resulted in inordinate delays and UPS twice pushed the timeline for the deal closure. Lastly, it eagerly looked forward to a successful completion of the deal in 2013.
Owing to the blockage, both UPS and TNT faced a hard time convincing the regulators who cited competitive issues the deal carried. The two companies even proposed sale of certain assets to secure the proposal. However, all these efforts did not make much of a difference and finally the take over has now been declared to be prohibited by the European Commission.
Regulators fear that the deal might bring in unfair competition affecting pricing policies and services, ultimately impacting end-users. In addition, it would negatively influence the market dynamics as UPS would have emerged as the biggest player in delivery business in the European continent, leaving only two other large peers; namely, DHL and FedEx Corporation (FDX - Analyst Report) .
Prohibition remains a big disappointment for the company, as it would mean losing significant synergies, which it expected to realize from the TNT acquisition. Should the deal materialize, it would boost UPS’ footprint in Europe – particularly Britain, France, Germany and the Netherlands – consolidating its position as a global leader in the logistics industry with annual revenues of more than €45 billion ($60 billion).
However, UPS seems to look beyond the failed TNT agreement, and aims toward smaller acquisitions. In December 2011, the company acquired Italian pharma logistics provider Pieffe Group to enhance its position in North and South America, Europe and Asia. Following this, it acquired a Belgian e-commerce company, Kiala in February 2012.
UPS retains a Zacks Rank #3 (Hold) rating. For the long term, we have a Neutral recommendation on the stock.