Earlier this week, TNT Express rejected UPS’ $6.4 billion acquisition offer, but that hasn’t stopped speculation that a deal may still come to fruition.
The U.S. integrator offered €9 per share for the company; according to a BB&T Capital Markets analysis, this is a fair valuation for a company of its size. Currently, BB&T found, TNT’s operating margin of 3.7 percent ranks a distant fourth among worldwide integrators behind UPS (14 percent), FedEx (8.1 percent), and DHL (7.9 percent). Nevertheless, the analysts wrote that a deal still could be in the cards and that additional players like FedEx could enter the conversation.
“Integrators know TNT is a seller, but UPS and FedEx are probably the only two legitimate buyers,” according to the analysis. “With such a small buyer pool, we believe FedEx and UPS can name their low price. While FedEx may come back with a slightly more competitive bid and UPS may raise their bid, we just don’t envision a crazy bidding war breaking out, as FedEx has nearly double the capital expenditures the next couple of years to refresh the airline fleet.”
TNT boasts a fleet of 47 planes of 26,000 trucks and an extensive Southeast Asia trucking network.
Cathy Roberson, a senior analyst at Transport Intelligence, worked at UPS for 10 years, and she said rumblings about an acquisition of TNT have been present for quite a while. When TNT spun off its express division, these rumors intensified. If a deal is ultimately to go through, she said, it will change the dynamic of the worldwide air cargo sector.
“It would be a major acquisition in the airfreight market, overall. The airfreight market has been hurting for quite a while, and we’re all expecting consolidation to occur,” she told Air Cargo World. “It looks like it’s going to go through. I’m not saying that UPS is definitely going to buy it, but someone is going to buy TNT, more than likely.”
If UPS were to acquire TNT Express, the deal would present at least one issue. Roberson pointed out that the combined company would likely claim a majority of the market in some European countries, triggering European antitrust laws. UPS could then either divest or would have to come up with a new plan for those countries. On the plus side, Roberson said, TNT has a broad South Asian road network, which would certainly give UPS a leg up in the Asian market.
Even though this is a smart deal for both parties, Roberson said TNT has to be careful about asking for too much.
“I don’t see UPS really offering that much more. UPS is more or less in the driver’s seat here,” she said, noting that the integrator could up its offer a little more, but is not likely to go too much higher or get in a bidding war with another carrier. “UPS has walked away from deals in the past. UPS is doing fine on their own; it’s not like they have to absolutely have this acquisition.”