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Why Europe barred the UPS-TNT merger

By Hpanchal on January 31, 2013

The European Commission this week explained why EU merger regulations forced it to block UPS’s proposed acquisition of TNT Express.

The takeover would have restricted competition in intra-European express delivery of small packages in 15 member states, reducing the number of significant players to only two or three and sometimes leaving DHL as the only alternative to UPS, the Commission judged. “The concentration would therefore have likely harmed customers by causing price increases,” it said.

The proposed remedy by UPS– it offered to divest TNT's subsidiaries in the 15 countries concerned, and allow the buyer to access its intra-European air network for five years–proved “inadequate to address the identified competition concerns,” the Commission concluded after carrying out an in-depth assessment and consulting with customers and other interested parties.

Joaquín Almunia, Commission VP in charge of competition policy, said, “Businesses would have been directly harmed by the takeover of TNT by UPS because it would have drastically reduced choice between providers and probably led to price increases. We worked hard with UPS on possible remedies until very late in the procedure, but what they offered was simply not enough to address the serious competition problems we identified.”

The problem in the Commission's eyes was that, of the four integrators that combine air services and ground delivery networks for small packages, FedEx has too small a market share in several countries to exercise a significant competitive constraint on UPS and TNT. “Other market players, such as national postal operators, can only compete to a limited extent because they do not reach comparable efficiency or reliability, given their heavy reliance on road rather than air transport,” it said.

The Commission had indicated two weeks earlier that this would be its decision. UPS waited for the official verdict before formally withdrawing its offer for TNT on Jan. 30.

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