This week, United Parcel Service, the package delivery company, reached an agreement to buy TNT Express, its smaller Dutch rival, for about €5.2bn, wrapping up a deal that has been more than 10 years in the making.
The purchase is the biggest in UPS’s 105-year history, and to win out, the company was forced to up its offer and fork out a sizeable sum. The purchase price represents a 54 per cent premium relative to the unaffected share price of TNTE.
Still, executives at the Atlanta-based company argue the acquisition is worth every cent, giving it access to an extensive road freight network in Europe, as well as a bigger footprint in countries such as Australia, Brazil and China.
In total, UPS expects to achieve between €400m and €550m of annual cost synergies, although achieving them will require €1bn of investment and plenty of time. UPS expects the complex integration process to take four years.
Other potential hurdles remain. Earlier this week, FedEx, UPS’s main US competitor, said that it was focused on profitable organic growth within Europe, appearing to scupper the chance of a rival offer, but a counterbid is still possible.
And the deal will face scrutiny from regulators, particularly in Europe where the enlarged UPS will end up with a 30 per cent share of the express parcel market. To win approval, the company could be forced to dispose of some assets.
However, UPS says it is confident it will succeed. The company expects the offer period to close in the third quarter of the year and has agreed to pay TNTE a termination fee of €200m if the proposal falls foul of regulators.
Get alerts on Mergers & Acquisitions when a new story is published