DHL Express said yesterday that it expected to profit in the short term from uncertainty overthe possible merger of TNT with UPS and that it had no concerns in the longer term, as new reports
emerged that DHL’s two rivals may be close to an agreement.Ken Allen, CEO of DHL Express, yesterday said the planned takeover of TNT Express by UPS hadbeen taking up a lot of his time. He said it was public knowledge that TNT had been in talks withUPS and FedEx at various times over the last few years, although he was surprised by the timing oflast month’s offer by UPS. But he insisted that DHL was not concerned by it.
“What is surprising is the size of the offer, €9 a share,” said Allen. “That is €5 billion for acompany that is making a negative EBIT and a net loss. So it seems extremely generous.”
Allen said he found some of the statements made by TNT and its shareholders “surprising”, andthat there also seemed to be some significant issues still to resolve.
“The major shareholders said that the price offered was not enough, which I find surprising, andthere are labour concerns and issues about remedies and conditions. So there is obviously a lot toresolve there, which means that there is continued disruption, especially for TNT customers, whodon’t know what is happening, and also for TNT employees, who were also under similarconditions.”
Allen said that in its recent results announcement, TNT said it was continuing with its normalactivities, but questioned whether TNT’s current situation was normal. “They recently disposed oftheir India business, they have a big cost-reduction programme that we know about, they are lookingfor partners in Brazil and China, and they are looking to do things with their European airline,”he observed. “I honestly think the business case to pay more is a difficult one to make.”
He also said there were many unanswered questions, such as what would happen to TNT Airways, thecompany’s in-house air capacity provider. “That is a Belgian-based airline with reciprocal flyingrights around Europe. If an American company comes to take that over, what happens there? And theLiege hub or the Cologne hub – how is that going to work? Or the head office in two locations – howis that going to be resolved?”
Allen said there would definitely be competition issues arising from the merger in the UK,Germany, and the Netherlands, and probably a number of other European markets.
“So I think this has still got a long way to go. I don’t believe that FedEx will make a bid – Ithink it is too expensive and I don’t think they would want to get into a bidding war withUPS.”
But that would leave FedEx in a relatively weak position in Europe, Allen added. “They have bitsof partnerships at the moment. Maybe they could look at a GLS or a DPD acquisition, but I don’tthink that is likely either. But if they have to build out their European situation, that is goingto take a number of years in an environment where business is tough.”
He continued: “From our side, we are very happy with our intra-European growth. Our volumes atthe end of last year were growing at a healthy 10%, so our European business is very strong. Ifthere is an acquisition, it is going to mean a lot of disruption in the market, and we will takeactions accordingly. So I think it is positive news for us in the short term and we will obviouslywatch everything very carefully.”
One newswire yesterday reported that UPS was close to an agreement to buy TNT, following theinitial rejection last month of its €4.9 billion offer.
Sources close to the companies said the two sides are now close to a deal on the price and onconditions that may lead to job cuts and require divestments in some countries in order to winapproval from European competition authorities. One suggested that an announcement may come as soonas next week.
TNT is the smallest of the four major global express companies, but has a 9.6% share of theEuropean market, compared with 17.6% for DHL Express, 7.7% for UPS and 3.3% for FedEx, according toTransport Intelligence. The acquisition of TNT would therefore give UPS a 17.3% share of themarket for European express shipments before any divestments, almost on a par with DHL. Analystsbelieve the purchase would probably require sales of road operations and depots in the Beneluxcountries and the UK to satisfy competition regulators. Under Dutch law, UPS has to clarify itsintentions to the market by 16 March, four weeks after the first announcement of its acquisitionproposal.
Deutsche Post DHL CEO Frank Appel yesterday commented: “We are quite relaxed in one respectabout it. We have a very strong position worldwide, and if any competitors are consolidating, thisdoes not have much concern for us. We will continue with our organic growth.
“If a transaction leads to a dominant position in any countries, then we would expect that theEuropean Commission will prevent this.”
