UPS, TNT see extended EC probe of $6.3B deal

Release date: 16/07/2012

United Parcel Service Inc. is bracing itself for a late delivery on its €5.16 billion ($6.29 billion) purchase of TNT Express NV because it expects European Commission regulators to open an extended review.

by Renee Cordes, The Deal Pipeline, published July 16, 2012 at 8:43 AM

UPS and TNT late Friday, July 13, said they expect to complete the deal in the fourth quarter of this year. It said "there are certain areas that require more time to analyze" and which will prompt antitrust regulators to open a Phase Two review.

The announcement comes four days before the Commission's Friday deadline for wrapping up its initial probe. A Commission spokesperson could not immediately be reached for comment, but the regulator's online case database still lists the original July 20 deadline for a Phase One case.

An in-depth investigation can take up to 25 weeks to complete, keeping Brussels- based antitrust lawyers Winfred Knibbeler and Alan Ryan of Freshfields Bruckhaus Deringer LLP for UPS and Paul Glazener of Allen & Overy LLP extremely busy.

Given the expected antitrust delay, the companies said they now expect to extend the offer period beyond Aug. 31.

"UPS and TNT Express welcome the opportunity to further engage with the Commission's competition services," the companies said. "UPS and TNT Express remain convinced that the merger will benefit customers and other stakeholders and look forward to successful completion of the regulatory process."

TNT shares had shed 1.8% on the Euronext Amsterdam exchange by early Monday afternoon to trade at €9.03, well below the €9.50-per-share offer price and translating into a total market value of just above €4.9 billion. Shares in TNT's 29.9% shareholder, PostNL, dropped 4.53% to €3.22.

On Friday in New York, UPS shares had closed up 1.1% at $79.44.

In a Monday note to investors, analyst Geert Steens of SNS Securities NV noted that while general uncertainty about the deal is "obviously unhelpful," he views a Phase Two probe as an unwelcome delay rather than a major risk.

Should the deal fall through on competition grounds, TNT will have to pay UPS a €200 million reverse break-up fee - which Steens said "will do little to alleviate the pain in the case of a cancellation." He nevertheless left his buy rating on PostNL unchanged.

For Atlanta-based UPS, the purchase would represent the largest ever in its 105-year
history. The deal was agreed in March after UPS raised its bid by 5.6%, to €9.50 a share from €9.00 a share, offering a naer-54% premium to the target's close Feb. 16, the day before the companies revealed they were in talks.

The deal would combine the second- and third-largest high-speed parcel delivery companies in Europe with a combined market share of 39%, overtaking the 37% share of Deutsche Post AG's DHL Express, which is also the global leader. The enlarged entity would have annual revenue of more than €45 billion.

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