FedEx Ready to Expand its Footprint in Europe with TNT Takeover

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Apr 09, 2015

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Package delivery services FedEx (FDX, Financial), announced its plans to take over TNT Express (TNTEY, Financial), a world renowned international courier and delivery service, headquartered in Hoofddorp, Netherlands. This move is seen as FedEx's attempts to expand its presence in Europe, where the delivery giant has not been able to capture market share as in the USA. Expert value the deal at a whopping $4.8 billion.

The move to expand

FedEx's move comes in the wake of the increasing presence of rivals such as United Parcel Service (UPS, Financial), in Europe and other regions. FedEx, which has so far maintained a conservative stance in the European markets, is all set to increase its presence, and leave a bigger footprint in Europe. The news of the impending takeover gave FedEx's shares a 3% jump, which is now trading at $171.77 since morning on Tuesday.

TNT has long been FedEx's rival, and one of the largest delivery companies in Europe. The 4.4 billion euros takeover will help FedEx become the largest delivery and courier services operator in the continent. For each TNT Express share that FedEx buys, it is willing to pay $8.75, to reach the massive settlement. This is a premium of 33% on the trading value of the company's shares as on April 2. The formalities are expected to be over by the first half of 2016, as FedEx has agreed to finish the purchase of its Dutch rival entirely through cash.

Regulatory issues

While all does seem to be going great for FedEx, it could find itself in some legal tangles over the issue of regulatory barriers. TNT Express was in talks with UPS in 2013, but the takeover didn't go through at that time because of strict regulations of the European Union. There is no reason why FedEx wouldn't face similar issues. However, by their public stance, it seems as if the company is ready to face any objections raised by the European regulators. In a joint press release issued by TNT and FedEx, the companies claimed to have faith in the European regulators and they said that they are confident of addressing any antitrust concerns adequately.

FedEx vs. UPS

The rivalry between FedEx and UPS is legendary. UPS, which is slightly larger than its rival, logged annual revenues of $58.2 billion last year, as compared to FedEx's $45.5. While UPS has been running operations in Europe for a long time, FedEx has found itself falling back there. UPS also has large operations in the United Kingdom, making Europe its largest source of international revenue, after the USA. FedEx, on the other hand, has struggled to make a foothold in the European Union and has been vying for an opportunity to do so.

Concluding thoughts

In a plan unveiled in 2011, FedEx reported to release a plan of launching 100 delivery stations in 11 countries across Europe. However, this has yet to happen. The merger between the two companies, strengthened by the agreement to pay each other a breakup fee, in case either of the partners step back from the merger, will help FedEx realize its European ambitions. This breakup fees has sat well with the regulators, who don't seem to be taking an exception to this move. Even the Dutch public postal company, called PostNL, supports the merger, despite having a share of 14.7% in the TNT Express.