Confirming reports, package delivery company United Parcel Service Inc. (UPS: Quote) on Monday announced a deal to acquire Dutch rival TNT Express NV (TNTEF.PK, TNTEY.PK) for sweetened 9.50 euros cash per share. The transaction, which would be the largest ever by UPS in its history, values TNT at approximately 5.16 billion euros ($6.77 billion) and would give UPS an edge over its rival FedEx Corp. (FDX) in Europe.
UPS made an offer on February 11 to buy TNT for 9 euros per share, which was higher than its initial offer of 8.25 euros per share made last year. TNT's board considered the proposal, but subsequently rejected it.
Nevertheless, Europe's second-largest package delivery company continued its talks with UPS. As per reports, the talks had been slowed down last month due to differences over matters related to personnel and location of the companies' combined operations.
UPS's revised offer price represents a premium of 53.7 percent to TNT's share price of 6.18 euros on February 16, the day before the companies announced their ongoing talks.
TNT, which has been facing pressure from shareholders to explore strategic options, has been seen as a takeover target for either UPS or FedEx for quite sometime now. FedEx was expected to make an offer for TNT after the UPS bid was rejected, but has so far not made an offer.
In mid-February, TNT reported a loss for the fourth quarter, reflecting weaker economic conditions and impairment charges at its Brazil operations.
TNT's Executive and Supervisory Boards, after careful consideration of all of its strategic alternatives, unanimously intend to support and recommend the new offer, which, according to the company, has compelling strategic rationale.
Dutch mail company PostNL N.V. (PNLLY.PK), holder of approximately 29.8 percent of TNT stake, has committed to tender its shares in the offer. TNT was split from PostNL in May 2011.
UPS and TNT expect that the combination would create a logistics giant with more than 45 billion euros or $60 billion in annual revenues. It will also help UPS's expansion in Europe, where Deutsche Post DHL (DPSTF.PK, DEUPF.PK) is the leader in express deliveries.
UPS's existing position in fast-growing regions such as Asia-Pacific and Latin America will also be benefited with the deal.
Following the transaction, around 36 percent of the combined group's revenues will be generated outside the United States, up from current 26 percent at UPS.
UPS estimates that the deal will deliver pre-tax cost synergies of approximately $525 million to $725 million achieved by the end of year four after closing. The transaction is expected to be earnings per share accretive in year one, on an as adjusted basis.
UPS will fund the offer by utilizing $3 billion in existing cash on balance sheet and through new debt arrangements. UPS had about $4.2 billion of cash and short-term investments as of December 31, 2011.
In case of any termination of the deal, UPS will give a termination fee of 200 million euros, while in case of a competing offer, TNT will give 50 million euros.
UPS closed Friday's trading at $78.41, down $0.53 or 0.67 percent on a volume of 4.61 million shares.
In Amsterdam, TNT settled on Friday at 9.35 euros, up 0.12 euros or 1.25 percent.
by RTT Staff Writer
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