Fedex to buy Dutch TNT Express for 4.4bn euros

FedEx and Dutch delivery company TNT Express announced on Tuesday they had reached an agreement by which the US courier giant will buy the Dutch group in an all-cash eight euro-a-share offer.

This offer represents a premium of 33% over the closing price on 2 April 2015, and an implied equity value for TNT Express of €4.4bn. However, that is 16% less than the amount tabled by UPS back in 2012, before its bid was blocked by the European Union.

The bid was approved by TNT's Express’ Executive Board and Supervisory Board as well as by its shareholders: the Dutch postal company PostNL, who owns 14.8% of the shares, and UBS, which controls 5.8%, as well as other institutional shareholders.

Their union will transform FedEx’s European capabilities and accelerate global growth.

According to both companies, their combination will transform FedEx’s European capabilities and accelerate global growth. If approved, this operation will allow customers to “enjoy access to an enhanced, integrated global network, combining TNT Express strong European capabilities and FedEx’s strength in other regions globally, including North America and Asia.”

Non-financial covenants agreed by both companies include the divestment of TNT Express’ airline operations, as well as the establishment of the combined companies' headquarters in Amsterdam/ Hoofddorp.

Although FedEx and TNT Express anticipated that the Offer will close in the first half of calendar year 2016, it has yet to be determined if there are any anti-trust concerns. In 2013, the European Commision opposed to the takeover of TNT by United Parcel Service (UPS), as it considered that the concessions to be made by UPS were not sufficient regarding the risks of distortion in the competition.

Analysts surprised, but confident

Analysts at Berenberg expressed their surprise at Tuesday's news, given that UPS's attempt to acquire TNT in 2012 failed due to competition concerns from the European Commission over the European market for international express packages.

However, FedEx only has about 10% of that market in Europe. Furthermore, together with TNT its slice of the market would only rise to 25%, the same as UPS and well behind the market leader, DHL.

The transaction is also a coup for PostNL, who has been looking to exit its 15% stake in TNT.

The tie-up should yield an annual run rate of pre-tax synergies of between €400m to €500m by the end of year four.