The proposed acquisition of TNT by UPS would “lead to a highly concentrated market for domesticand international express delivery services” in many EU countries, according to the initial
investigation by the European Commission, which confirmed last Friday that it would deepen itsinquiry into the transaction.The Commission said its preliminary investigation indicated potential competition concerns,particularly for international express services, “in numerous member states, where the partieswould have very high combined market shares” in the small-parcel delivery sector. It added: “TheCommission will now investigate the proposed merger in-depth to determine whether these initialconcerns are confirmed or not.”
Insisting that the opening of an in-depth inquiry “does not prejudge the result of theinvestigation”, the Commission said it now had 90 working days, until 28 November 2012, to take adecision on whether the proposed transaction would significantly impede effective competition inthe European Economic Area (EEA).
Commission Vice President in charge of competition policy, Joaquín Almunia, said: “The smallpackage delivery sector is of strategic importance for various other industries in Europe. Theproposed acquisition could in particular reduce competition for the provision of the fastestexpress delivery services, to the detriment of direct customers and ultimately of Europeanconsumers. The Commission needs to make sure that customers continue to have access to theseservices at competitive conditions.”
The transaction was notified on 15 June to the Commission, which has a duty under the EU MergerRegulation to assess mergers and acquisitions involving companies with a turnover above certainthresholds and to prevent concentrations that would significantly impede effective competition inthe EEA or any substantial part of it. The Commission clears the vast majority of mergers after aone-month review, but if it has competition concerns it opens an in-depth investigation − aso-called Phase II review.
Based on its initial investigation, the Commission concluded that the other two integrators, DHLand FedEx would be “the only significant competitive constraint on the merged entity” for mostexpress services, “especially for the fastest time-commitment deliveries”.
The EU competition watchdog added: “As the proposed transaction would reduce the number ofintegrators competing in the EEA from four to three, the competitive constraint on the mergedentity would be significantly reduced. This would lead in many member states to a highlyconcentrated market for domestic and, even more so, international express delivery services.”
A number of analysts believe that the EC will eventually insist on the sale of some of TNT’sactivities before it will give the go-ahead for its acquisition by UPS, and a Dutch newspaper lastmonth reported that UPS was considering disposing of TNT’s German and Benelux express services toovercome possible EU objections about UPS gaining dominant market positions in the Netherlands,Belgium and Germany. But UPS said these disposals had not been requested by the European Commissionand had not been offered by UPS or TNT.
The only major disposal so far confirmed is the planned change of ownership for Liege-based TNTAirways. Under EU rules, this must remain a European-owned airline in order to retain itsinternational traffic rights.
Rival DHL believes the merger would create competition issues in the UK, Germany, and theNetherlands, “and probably in a number of other European markets”. Deutsche Post DHL CEO FrankAppel, speaking last week ahead of Friday’s announcement, said the European Commission should “lookcarefully at what is happening” and whether there is a significant impact on competition, althoughin the short term he said the acquisition created “a huge opportunity” for DHL, “because two of ourcompetitors will be busy with integration”.
As a result of the extension of the European Commission inquiry, UPS said it would extend its€5.16 billion offer period beyond 31 August 2012, “in accordance with its commitment as set out inthe Offer Memorandum”. UPS said it now expected to complete the deal in the fourth quarter of2012.
