It’s not the first time that FedEx has been linked with a bid for TNT. Back in 2008, shares in TNT rocketed after reports that FedEx was planning to mount a bid.
And then in 2012, when UPS launched its bid for TNT, there was plenty of speculation that FedEx would jump in with a competitive offer.
The UPS bid of €9.5 per share valued the TNT business at €5.16bn, and represented a premium of 53.7 per cent on the TNT share price before the offer was announced. Clearly FedEx was not inclined to pay more for the business at that point and Fred Smith must have thought that the opportunity was gone.
However, UPS and TNT had reckoned without the European Commission which decided that the deal raised serious competition concerns and substantial remedies were needed.
In December 2012, UPS came back with an offer of remedies including the sale of business activities and assets in combination with granting access to air capabilities. Despite two revisions to the remedies plan, UPS could not get EU approval and finally dropped the deal in January 2013. It agreed to pay TNT a €200m termination fee.
The Commission’s decision may have opened the way for FedEx to mount an offer for TNT, but FedEx willbe only too aware of the potential for its own bid to be derailed by the Commission.
Following publication of the Commission’s decision in May last year, UPS responded by claiming that that the Commission had prevented €5.2bn of investment in Europe.
It highlighted the fact that the Commission’s analysis recognised that 95 per cent of the combined UPS and TNT business was not problematic.
“Additionally, there were no concerns in the countries that drive 80 per cent of European Union GDP, namely France, Spain, Germany, Italy and the UK. In the 15 countries where concerns were identified, UPS proposed significant and tangible remedies.”
When it appealed against the Commission’s decision, UPS argued that the decision was not based on an accurate assessment of the multi-product nature of customer contracts; it erroneously focused on a single product (next day cross-border shipments); ignored significant evidence from UPS and TNT about the strength and number of other competitors; and considered only a fraction of the efficiencies that would have been created following the acquisition.
When the Commission announced its decision to block the UPS -TNT deal it made specific reference to FedEx: “FedEx, for its part, has low market shares in a number of countries where it does not exercise a significant competitive constraint on UPS and TNT, because of the lack of density and scale of its European network.”
That alone must give FedEx confidence that it will be able to come up with remedies to satisfy any EU competition concerns about this deal.