UPS has launched a last-minute bid to block the merger of FedEx and TNT in Brazil, which would create a major domestic player in South America’s largest economy.
The company yesterday formally appealed against the decision of the Brazilian regulatory authority, the Conselho Administrativo de Defesa Econômica (CADE), which gave unconditional approval for FedEx’s offer for TNT on February 2. The authority stated at the time that the merger “does not create competitive concerns in the analysed markets”.
The European Commission cleared the €4.4 billion takeover deal last month, leaving China as the last remaining major market where regulatory approval is still pending.
A UPS spokesperson told CEP-Research today: "The review process in Brazil contains an option to submit an application to the senior level of CADE to consider a more in-depth review of an initial finding. This option has been exercised as part of ensuring a fair and thorough investigation." It is unclear when the authority will consider the appeal.
FedEx and TNT said in a joint press release this morning that an appeal against the unconditional approval by the Brazilian regulator had been made by an unnamed third party. They reiterated: “FedEx and TNT Express continue to work constructively with the regulatory authorities to obtain clearance of the transaction in the relevant jurisdictions, including China, and are making timely progress. FedEx and TNT Express remain confident that the offer will close in the first half of calendar year 2016.”
A FedEx spokesperson told CEP-Research today: “A third party filed the appeal of the unconditional approval of the intended acquisition by Conselho Administrativo de Defesa Econômica (CADE). We remain confident that we will close the acquisition in the first half of calendar year 2016.”
Asked about reports of a possible UPS appeal in Brazil, TNT CEO Tex Gunning already said during a Q4 results conference call on Tuesday (February 16): "We are not worried about it. We are all very confident that the deal between TNT and FedEx will go through. It will happen and close in the first half year (2016) despite what some of our competitors are saying or doing.”
According to observers, UPS could be concerned that a combination of FedEx and TNT in Brazil, as part of the US company’s acquisition of TNT, would create a dominant domestic express operator. Brazilian postal operator Correios is the overall domestic market leader but a combined FedEx-TNT would be number two, according to CEP-Research information, ahead of various Brazilian-owned companies and UPS.
TNT Express Brazil is believed to have some 7,000 staff and 2,500 vehicles at about 110 branches and depots serving some 5,000 towns and cities across the entire country, as well as offering cross-border road services to neighbouring South American countries and international air express services. Domestic operator TNT Mercurio comprises the bulk of this operation, while the separate international express business has a smaller footprint.
After deciding in early 2014 to retain the loss-making domestic business, TNT has focused on a financial turnaround for TNT Mercurio through cost-saving measures but the country’s slump into a serious recession has hit the B2B express market and impacted on results. Losses increased and revenues declined in 2015 after a breakeven was nearly achieved in 2014.
Gunning said this week: “Brazil is obviously in an enormous economic crisis so we see that the markets are shrinking. It means even the GDP is shrinking. It means the amount of trade is coming down and of course that affects the transport industry as well. But we are regaining market share in Brazil. So we think our management team is doing the right thing. They are on top of managing their costs and are containing the damage but you can't deny the macro-economic situation in Brazil.”
For its part, FedEx expanded significantly in the country in 2012 with the acquisition of long-standing partner Rapidão Cometa, a major domestic express player with revenues of more than $500 million in 2011. The combined business had some 50 branches, 145 distribution points, over 9,000 staff and nearly 1,000 vehicles. Since then several new facilities have been opened across the country, including a new 10,000 sqm distribution centre in Bahia last April.
In contrast, UPS has a relatively small operation in Brazil where it mostly focuses on international shipments. In 2014, the company announced plans for nine more depots in Sao Paulo state which would give it a national network of 21 locations in total.
DHL Express is focused on international express shipments to and from Brazil and does not have a domestic express operation. It has upgraded flights and gateways in Brazil in the last few years.
