World’s largest package delivery company, United Parcel Service, Inc. (UPS) announced that it expects its mega acquisition of TNT Express to be completed by the fourth quarter of 2012.
The acquisition is currently under review by the European Commission, which is expected to enter a Phase II investigation soon. According to reports this may take roughly 25 weeks to complete.
After the initial debacle in March 2012, the company had offered €9.50 in cash, which was initially €9.00 per share, for all the issued and outstanding common shares and American depositary shares of TNT Express. The offer began on June 22 and will end on August 31. Upon completion, this will mark the biggest acquisition by UPS in its 105-year history.
UPS had filed for the European regulatory approval on June 15 and received approval from the executive board and the supervisory board of TNT Express. On August 6, TNT Express’ board members will hold an Extraordinary General Meeting to further discuss UPS’ offer.
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). The transaction will further expand the company’s presence in Asia and Latin America providing an edge over its rival FedEx Corporation (FDX).
The combined company will generate about 36% of revenues outside the U.S., up from the current 26%. UPS projects the transaction to be earnings accretive in the first year and to generate pre-tax cost synergies of €400–€550 million ($525-$725 million) by the end of the fourth year after completion (i.e. 2015). Further, UPS intends to deliver a return on invested capital of at least 25% by 2014, upon the successful integration of TNT.
However, the company will incur one-time pre-tax costs of a billion euros or more than a billion dollars to integrate the operations of both the companies over the next four years. Additionally, the fruitful integration of employees and operations remains a risk to the company. Further, UPS has to pay €200 million to TNT in an event of termination of the deal.
Besides the TNT Express, UPS over time has been working to expand its operations in Europe through smaller acquisitions. In February 2012, UPS announced the purchase of a Belgian e-commerce company, Kiala. In December 2011, the company acquired Italian pharma logistics provider Pieffe Group to enhance its position in North and South America, Europe and Asia.
We, currently, have a long-term Neutral rating on UPS. For the short term (1–3 months), the stock retains a Zacks #4 Rank (Sell).
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