UPS’ presentation of its Q3 results tomorrow (October 23) will be under closer attention thanusual after the European Commission, as expected, formally objected to the company’s €5.16 billion
takeover of TNT Express.The two companies confirmed on Friday that they had received a Statement of Objections (SO) fromthe European Commission (EC) but released little information about the Commission’s concerns whichhave been the subject of widespread speculation.
They said that the Commission’s SO “addresses the competitive effects of the intended merger onthe international express small package market in Europe”. This suggests that the Commission hasmaintained its “narrow” view of the market by focusing on the four integrators (UPS, TNT, DHL andFedEx) and has not accepted their arguments that the European express market should be seen morebroadly as a combination of express and deferred delivery with B2C increasingly converging with theB2B business.
UPS and TNT Express said they will respond to the EC within a couple of weeks, noting that “thecompetitive effects will be further defined as the process continues”. Financial analysts couldtake the chance to quiz UPS executives on the Commission’s concerns about the TNT deal during thecompany’s Q3 analysts’ call tomorrow.
EU Commissioner Joaquin Almunia has stated that he is concerned about the impact on competitionand prices from the merger, which could leave DHL Express and FedEx as the only major internationalexpress competitors in Europe to a merged UPS-TNT group, and is keen to see “credible”competition.
Diverse media and analysts have speculated that UPS might be forced to sell off businessactivities in markets where a combined UPS-TNT group would have a dominant share of theinternational express market. Experts believe that UPS executives now have to weigh up thefinancial and strategic advantages and disadvantages of agreeing to major remedies while it is alsounclear whether competitors such as FedEx would be interested in acquiring any potentialdisposals.
In their statement, UPS and TNT stressed that an SO “is a normal step in a second phase mergerprocedure” and is a confidential document that sets out a provisional position of the Commissionand does not prejudge the final outcome of the case. The two companies intend to preserve theconfidentiality of the document and discussions in line with common practice.
UPS and TNT Express reiterated that they believe competition in Europe “continues to besignificant”, coming from multiple players who offer similar services. The combined companywill help create a more efficient logistics market, thereby improving the competitiveness of Europeand the solutions offered to businesses and consumers, they said. “Those benefits include futureimprovements to e-commerce to help achieve the EU objective of a Digital Single Market. Inaddition, customers and consumers will benefit from a broader portfolio of services and betterglobal access, along with lower supply-chain costs overall and improved service levels in terms oftiming and reliability.”
UPS and TNT Express added that they have worked closely with the European Commission and lookforward to continuing “open and constructive discussions as we work to complete the transaction inearly 2013”.
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.
