Following acquisition talks in April, FedEx Corporation (FDX) has finally reached an agreement to acquire TATEX Express. French-based TATEX Express provides courier and express transport services to industrial customers across Europe and international markets.
Although the terms of the deal remain undisclosed, we expect FedEx to gain from TATEX’s proven market position. TATEX ships 19 million parcels annually, accounting for 150 million Euros in sales revenue.
Following the announcement of the proposed acquisition of Opek Sp.z o.o, this remains the second move by the company to enter the European package delivery market.
FedEx comes second in the sector to carry out strategic acquisitions by targeting smaller businesses.It follows the $6.77 billion ($5.16 billion euro) pipeline acquisition of Dutch shipping company TNT Express by the largest package delivery company, United Parcel Service (UPS).
Prior to TATEX, FedEx proposed to acquire Opek Sp.z o.o. Upon completion of the acquisition, it is estimated to garner annual revenue and shipments of $70 million and 12.5 million, respectively.
We believe that the acquisition pattern of FedEx remains impressive as these smaller acquisitions with their diversified businesses will enable the company to spread its wings across a variety of target markets. For instance, TATEX is typically involved in a B2B process. On the other hand, Opek has a business of standard parcel delivery across Poland, mostly involving Ground deliveries.
Further, these two companies have different networks of operation. TATEX is focused on business across France and international markets, while Opek’s business is typically concentrated in Poland. We believe the acquisition of these small companies, which have a strong foothold in local markets, will help FedEx gain from the fragmented European package delivery market.
In financial terms, overall exposure to risk also remains low for FedEx, given the smaller size of these businesses. It also entails lower investment compared to UPS' ambitious TNT Express acquisition plan.
TNT Express remains a promising bet for United Parcel with annual revenues of more than €45 billion ($60 billion) but considering the economic upheavals in the global market, uncertain business results from even giant corporations cannot be completely ruled out.
Overall, it remains difficult to quantify the near-term financial gains that these companies (FedEx and UPS) will derive out of their European expansion, where sovereign debt concerns could significantly weigh on the economic recovery. However, long-term prospects of these acquisitions look promising.
There are foreseeable opportunities not only in Europe but in emerging markets like China, India, Japan and Brazil, as well as other Asian markets for international growth.
Currently, FedEx retains a Zacks #3 Rank (short-term Hold recommendation). We also reiterate our long-term Neutral rating on the stock.
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