UPS has abandoned its €5.2bn bid for Dutch delivery group TNT Express in the face of stiff opposition from Europe’s antitrust chief, who is preparing to block the second big tie-up involving a US company in just a year.
The decision to give up on attempts to win clearance from Brussels sent shares in TNT tumbling by as much as 49 per cent and marked a grim start to the year for M&A bankers and for hedge funds who were betting on the deal being completed.
However people close to the deal are already speculating about the prospects of a separate bid for TNT from FedEx, the main rival to UPS. It would need to pay less than UPS and would face fewer competition obstacles.
Joaquín Almunia, the EU competition commissioner, believed the takeover left many European markets with just two or three “integrators” – companies that combine air and road delivery capacities – leading to a poor choice for customers and the threat of higher prices.
UPS had been scrambling to put in place a last-minute package of remedies to win approval, which involved selling a portfolio of assets across Europe to France’s DPD and giving it rights to buy space on the UPS airline.
However, the remedy was extremely complex and involved many uncertainties, such as whether DPD had the ability or inclination to challenge the likes of DHL and UPS in express delivery over the long term.
Commission officials told UPS that they were preparing a prohibition decision on those grounds and – crucially – declined to extend the deadline to give it more time to agree terms with DPD. Scott Davis, UPS chief executive, said he was “extremely disappointed”.
EU officials dismissed any suggestion that the tough line, which comes less than a year after Mr Almunia blocked the merger of Deutsche Börse with the New York Stock Exchange, will cause a rift with the US.
But one shareholder in UPS questioned the “heavy hand” of Brussels “meddling” with a successful US company’s ambitions. “It is problematic. It sounds to me like TNT is impaired on its own. So how is competition going to be improved in Europe?” said Richard Platte, a portfolio manager for Ave Maria mutual funds.
Although UPS sees no “realistic prospect” of the deal being cleared, a formal termination of its agreement with TNT will occur once Brussels has officially blocked the deal. A commission spokesperson said: “The commission will take its decision by February 5.”
Brussels has only blocked 22 mergers and acquisitions deals since the introduction of merger control rules in 1989. Almunia requires the approval of the college of EU commissioners to block the UPS-TNT deal, but it is extremely rare for a draft prohibition decision to be overturned.
The failure of the deal is a blow to UPS’s ambitions to gain a stronger foothold in the European market. It agreed to pay TNT a €200m break-fee if the deal fell through on competition grounds.
It leaves TNT Express, the world’s fourth-largest parcel group, without a clear strategy. The company was demerged from its former parent company TNT in 2011 with ta view to making a merger with UPS or FedEx attractive.
Bernard Bot, TNT Express’s acting chief executive, said the company would “focus on executing our existing strategy” and that the company would release a new strategic review “in due course”.
The collapse is yet another blow for dealmakers. According to data provider Thomson Reuters, the advisers would have been on track to earn around $55m, with an estimated $25.4m for the target advisers and $29.6m for the acquirer advisers. Goldman Sachs advised TNT and Lazard advised its advisory board, while Bank of America Merrill Lynch, Morgan Stanley and UBS advised UPS.
With the deal failing, the financial advisers typically will only take home around 10 per cent of that. Globally investment banking fees in 2012 fell 3 per cent to $74.8bn, the slowest period since the 2009, while in Europe bankers fees fell to an eight-year low.
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