The European Commission today announced a full investigation into FedEx’s planned €4.4 billion takeover of TNT due to competition concerns, in a move that could delay the deal by months.
Brussels warned that a combined FedEx-TNT, which would compete with DHL and UPS in future, could led to reduced competition and higher prices. It fixed a deadline of December 8 to take a decision on the deal.
“The Commission has concerns that on a number of European markets for international express and regular (so-called ‘deferred') small package deliveries, the merged entity would face insufficient competitive constraints from the only two remaining players (UPS and DHL). This could lead to higher prices for business customers and consumers,” it stated.
Competition commissioner Margrethe Vestager said: “Many businesses, and in particular e-commerce, rely heavily on affordable and reliable small package delivery services, and many consumers depend on these services to ensure rapid and safe delivery of goods they have bought.
“The Commission must therefore make sure that FedEx’s takeover of TNT would not impede effective competition and would not lead to higher prices for consumers.”
The Commission said its initial investigation has shown that small package delivery services can be divided into several segments, depending notably on whether the destination is in the European Economic Area (EEA) or beyond and on whether the timing of the delivery is express or 'deferred'.
“The Commission's preliminary investigation indicates that the other 'integrators' would be the only significant competitive constraint on the merged entity for most international express services, with a destination within or outside the European Economic Area (EEA). As the proposed transaction would reduce the number of 'integrators' competing in the EEA from four to three, the competitive constraint on the merged entity would be significantly reduced, leading to a concentrated market in several Member States for international express delivery services to a destination within or outside the EEA.
“FedEx and TNT also provide international 'deferred' services outside the EEA. The Commission's initial market investigation showed that the merged entity would have very high market shares for services to some destinations leading to potential competition concerns.”
The news, which echoes the Commission’s long and detailed probe into the UPS-TNT deal that it ultimately blocked in January 2013, comes as a surprise as both companies had repeatedly said they did not expect Brussels to raise serious concerns. The major issue had been seen as the need to find an EU-based owner for TNT Airways, which cannot be US-owned under European aviation regulations, but otherwise there is relatively little overlap between the two companies and their businesses were seen as complementary.
Earlier this month, the European Shippers Council, representing business customers, said that an overwhelming 90% of its members had supported the planned merger in a survey, in order to maintain three major players and ensure continued strong competition in the sector.
DHL Express is the European market leader with a market share estimated at about 19%, ahead of UPS with 16%, TNT with 12% and FedEx with 5%, according to media reports. A FedEx takeover of TNT would thus create a strong third competitor to DHL and UPS in Europe.
Under the agreed deal announced on April 7, FedEx would pay €8 per share for all TNT shares, valuing the Dutch company at around €4.4 billion. FedEx filed the acquisition documents with the European Commission on June 26 but has not made a formal offer yet. The offer had been expected during the third quarter with TNT shareholders scheduled to vote on the offer in the second half of this year and completion expected in the first half of 2016. This timetable now looks questionable following the Commission’s decision.
