The European Commission has surprisingly delayed its in-depth investigation into UPS’ €5.2billion takeover of TNT Express in order to get more detailed information about the express and
parcel markets, although the two firms remain confident the deal will go through in Q4.After announcing on July 20 a deeper Phase 2 probe into the takeover that would be completed by28 November, the Commission has now suspended this investigation deadline. A spokesman toldinternational media that the Commission wanted additional market information and would then “resetthe clock” for its in-depth investigation.
However, spokesmen for both UPS and TNT stressed that the companies still expected thetransaction to be completed in the fourth quarter of 2012. On August 6, TNT CEO Marie-ChristineLombard told the company’s EGM: “We are absolutely confident that the bid will go through.”
On July 20, the Commission said its initial one-month investigation had raised potentialcompetition concerns in the small parcel delivery market, especially for international expressservices. “It appears that other integrators would be the only significant competitive constrainton the merged entity for most express services, especially for the fastest time-commitmentdeliveries. As the proposed transaction would reduce the number of integrators competing in the EEAfrom four to three, the competitive constraint on the merged entity would be significantly reduced.This would lead in many Member States to a highly concentrated market for domestic and, even moreso, international express delivery services.”
Commission Vice President in charge of competition policy Joaquín Almunia stated: “The proposedacquisition could in particular reduce competition for the provision of the fastest expressdelivery services, to the detriment of direct customers and ultimately of European consumers. TheCommission needs to make sure that customers continue to have access to these services atcompetitive conditions.”
Experts believe that UPS and TNT Express may have under-estimated the European Commission’sconcerns about competition issues.
Boris Winkelmann, managing director of ITA Consulting, commented: “The opening of the phase 2investigation is not really a surprise since the combined market share of UPS and TNT is verystrong in certain European markets, in particular in the International Express market segment. The ‘ pause’ announced by the EC yesterday indicates that the gathering of data required for the Phase 2investigation is taking more time than expected and that again gives a hint at the complexity ofthis case. For example, each integrator defines market segments and reports numbers in differentways. Moreover, the issue of what level of market share should be seen as “dominant” is also a veryopen question.
“The Commission’s main area of concern is the strong combined position that UPS and TNT wouldcommand in certain European markets in the International Express market segment and the fact thatthe available choice for customers would effectively reduce from 4 options (DHL, UPS, Fedex, TNT)to only 3 options (DHL, FedEx, NewCo), in particular for the Intercontinental Express shipments.When you look at the EC’s evaluation of previous mergers in the industry, in particular the mergerbetween PostenAB and Danish Post in 2009, the position of the EC does not come as a surprise to us.The market segments are different but the issues are similar.
“Based on our research and assessments, we think that the EC will impose certain preconditionsto the deal, which will include the divestment of certain assets and of a portion of the customerbase in order to reduce the dominance of the combined market share. The question will be whetherUPS will accept these conditions and if so, whether it will find a suitable buyer.”
