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UPS Challenges EU Verdict on TNT

Zacks Equity Research

United Parcel Service, Inc. (UPS) and TNT Express have once hit the headlines for their attempt to win back the lost ground on proposed acquisition plans. Going by market reports, UPS has appealed against the European Union (EU) regulator's decision of forbidding the acquisition of Dutch shipping company TNT Express.

Previously, UPS had stated that it had dropped its acquisition plans. However, the company aims to challenge the regulatory ruling for clarifications on the European Commission’s assessment on the competitive landscape in Europe that forced regulators to discard the UPS–TNT deal from materializing. Earlier this year, regulatory authorities in the Competition Commission rejected the deal citing that it would increase express freight rates in 29 countries.

The commission feared that if the deal materializes, UPS is will emerge as the biggest player in the delivery business in the European continent, leaving only two other big peers – DHL Express and FedEx Corporation (FDX). Further, the deal would consolidate UPS’ position as a global leader in the international market with annual revenues of more than €45 billion ($60 billion).

In respect to these issues, UPS planned to sell TNT Express’ assets to the European Union to meet the antitrust requirements for the completion of the impending acquisition of the later. The two companies reportedly decided upon selling their business units to 13 countries of the European Union and provide access to UPS’ networks to secure the $6.8 billion acquisition deal.  

According to reports, UPS was making efforts through informal channels to persuade FedEx to buy certain assets of TNT to secure the deal. However, FedEx turned down the deal showing no inclination towards acquiring TNT’s assets.

We believe UPS’ decision to seek assessment over the rejection of the TNT acquisition may revive the company’s effort to expand through acquisitions. A proper insight on the regulatory and competitive environment in Europe amid economic uncertainties would help curb contingencies for UPS while pursuing acquisition and merger policies in this continent.

UPS operating with other industry players like Expeditors International of Washington Inc. (EXPD) retains a Zacks Rank #3, implying a Hold rating.

Air Transport Services Group, Inc. (ATSG) with a Zacks Ranks #2 (Buy) is another stock in this sector we see as worth considering.

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