UPS will soon need to decide what concessions it is ready to make to secure EU regulatoryapproval for its €5.16 billion takeover of TNT Express following yesterday’s ‘state-of-play’
meeting in Brussels.The US company is expected to receive the European Commission’s formal Statement of Objections,listing concerns about the deal, within the next week, and thus shortly before it presents its Q3results on October 23. It will then have two weeks to respond.
UPS International chief Dan Brutto yesterday held talks with European Commission officials tohear their concerns about the potential impact of the deal on competition and prices in theEuropean express market, and also underlined the company’s commitment to the deal to internationalmedia.
“There was a state-of-play meeting yesterday,” a spokesman for UPS Europe confirmed toCEP-Research. “We now expect the Statement of Objections within the next week and there would betwo weeks to respond.”
Brutto declared yesterday that UPS was “committed to working this deal through” and urged theEuropean Commission to be “reasonable” in assessing the competitive and market impact of themerger.
However, analysts are now questioning whether UPS would be ready to agree to major ‘remedies’such as disposing of large parts of TNT’s business as this might undermine the overall rationalefor the deal and no longer make business sense.
The spokesman declined to comment on whether UPS would be ready to make divestitures ifnecessary to gain approval for the deal and whether the deal could fail if the EU Commission sought“unreasonable” remedies that would mean major disposals.
The Wall Street Journal reported today that if the European Commission retained its “narrow”definition of the express market, then UPS might have to sell part of the merged company’soperations, such as TNT’s international small parcel delivery business, to “a credible purchaser”.
EU Competition Commissioner Joaquin Almunia has stated that he is concerned about the impact oncompetition and prices from the merger, which could leave DHL Express and FedEx as the only majorinternational express competitors in Europe to a merged UPS-TNT group.
However, UPS has strongly argued that there are six major players in the European expresssector, not only the four integrators but also La Poste-owned GeoPost/DPD and Royal Mail-owned GLS,citing a recent A.T. Kearney market study.
UPS has also highlighted the increasing convergence between the express and deferred deliverymarkets, where large freight forwarders such as DB Schenker and Kühne + Nagel and many smallercompanies also compete for business. It believes these segments should be seen as one market asthere is no longer a clear separation.
Another aspect is the fast growth of e-commerce and the resulting increase in B2C deliveries,Brutto pointed out. UPS claims that the merger will help to stimulate the growth of e-commerce inEurope, with benefits for the continent’s economy and jobs.
Under its Phase 2 in-depth investigation, the European Commission currently has given itself adeadline of January 15, 2013, to take a decision on the transaction.
