Brussels today delivered a late Christmas present to FedEx and TNT by unconditionally approving FedEx’s planned €4.4 billion acquisition of the Dutch company, leaving only regulatory clearance from Brazil and China and the sale of TNT Airways as the major items to be ticked off before the deal can be completed during the first half of this year.
As expected, the European Commission confirmed that its in-depth investigation launched last July had concluded that the acquisition would not give rise to competition concerns, “because FedEx and TNT are not particularly close competitors and because the merged entity will continue to face sufficient competition from its rivals in all markets concerned”.
Commissioner Margrethe Vestager, in charge of competition policy, commented: "Many businesses and consumers rely heavily on affordable and reliable small package delivery services, in particular with the growth of e-commerce. Therefore, the Commission has thoroughly assessed the markets affected by this takeover. The conclusion is that European consumers will not be adversely affected by the transaction. We have therefore unconditionally approved the merger."
The Commission explained that the in-depth investigation had been prompted by concerns that the proposed acquisition would substantially lessen competition for international deliveries of small packages up to 31.5kg in the European Economic Area (EEA), either within the EEA or outbound from the region. In particular, it was concerned that following the transaction, the merged entity would face insufficient competitive constraints from the only two remaining integrators, DHL and UPS. A lack of sufficient competitive constraints could lead to higher prices for business customers and consumers.
But Brussels stated: “These concerns have been dispelled by the Commission's in-depth investigation. The Commission concluded that the proposed concentration would not significantly impede effective competition in the EEA or any substantial part of it.
“As regards international intra-EEA express delivery services, the Commission considers in particular that the merged entity's market position will be moderate and that, amongst integrators, FedEx and TNT are not particularly close competitors. The Commission's investigation showed that FedEx still exerts a weaker competitive constraint on the other integrators due to the lack of density and scale of its European networks.”
The Commission noted that it carried out a price concentration analysis which is in line with the approach in the UPS/TNT case, and it also found that the transaction will give rise to verifiable, merger-specific efficiencies due to network cost savings which will benefit customers.
“Similarly, as regards extra-EEA deliveries, the Commission concluded that the market position of the merged entity on markets for deliveries to the world and to the major world trade lanes will be moderate and that amongst integrators, FedEx and TNT are not particularly close competitors. This is due to TNT's focus on intra-European markets.The Commission also found that DHL and UPS will compete effectively with the merged entity after the transaction and that the takeover will allow the business to be run more efficiently due to network cost savings.”
In addition, the Commission looked at the potential impact on SMEs but concluded they would not be more affected by the acquisition than other customers.
In response, FedEx and TNT Express welcomed the Commission’s decision and said they will continue to work constructively with regulatory authorities to obtain clearance of the transaction in the remaining jurisdictions, including Brazil and China. In Brazil, both companies own leading domestic express parcel delivery businesses, while they compete in China in the international express market, especially for shipments to Europe.
“We are extremely pleased to receive the European Commission’s unconditional approval,” said David Binks, Regional President Europe, FedEx Express. “We believe the combination of TNT Express and FedEx will provide significant value to the employees, customers and shareholders of both companies.” The two companies added that they continue to anticipate that the offer will close in the first half of calendar year 2016.
Regarding TNT Airways, a TNT spokesman told CEP-Research that the sale of the Liege-based cargo airline (and the smaller Spanish unit PanAir) is not a merger remedy required by the EC to clear the deal. “However, it is necessary to do so to comply with airline regulations and ensure that the airlines are able to keep their traffic rights and continue operations after closing (the deal).” Under EU aviation regulations, a European airline cannot be owned by a non-European company.
He declined to comment on any talks with potential buyers. “We will give an update on the airlines in due time. Until then, it will be business as usual.”
There has been speculation that Irish group ASL Aviation, which would have acquired TNT Airways as part of the blocked UPS-TNT deal and which is raising €100 million for ‘growth plans’, is a prime candidate to take over TNT’s airlines. ASL already owns four different European airlines that operate sub-contracted flights for DHL, UPS and other customers, including mostly recently Amazon.
TNT Airways has a fleet of 54 aircraft, which are mostly leased, including three B777 freighters and two B747-400 freighters. Most of the fleet (49 aircraft, including B757s, B737s and BAe146s) is used for intra-European transport, with more than 630 weekly flights to 65 airports in 19 countries.
“For intercontinental connections, we use a combination of owned and purchased capacity (in the proportion of 40/60). We operate our own flights to Dubai, Singapore, Hong Kong, Shanghai and New York,” the spokesman added. TNT Airways employs about 550 employees.
