EU Regulators Weigh Seeking Concessions on FedEx-TNT Deal
EU regulators probing bid for TNT consider demanding asset sales, threatening deal
By TOM FAIRLESS and LAURA STEVENS
Oct. 1, 2015 6:46 p.m. ET
BRUSSELS— FedEx Corp. has run into unexpected hurdles in its planned takeover of Dutch rival TNT Express NV, as European regulators consider demanding concessions, such as asset sales, which could throw the deal off course.
FedEx executives have portrayed the proposed €4.4 billion ($4.9 billion) merger as a sure thing, arguing it bears little resemblance to an earlier bid for TNT by rival United Parcel Service Inc. That deal failed in early 2013 after resistance from Europe’s antitrust cops. Then as now, executives of both companies were sure the deal would get a green light.
European Union regulators could serve FedEx with a formal complaint listing their concerns in about two weeks, said people close to the deal, a step typically followed by negotiations over potential concessions.
If FedEx is required to sell assets, some experts said, finding a viable buyer could be tricky in a market the EU says contains just two other direct competitors: UPS and DHL, a unit of Deutsche Post AG.
That issue helped derail UPS’s bid for TNT. The European Commission, the EU’s competition regulator, insisted that any buyer had to be able to compete fully with the remaining international delivery companies. UPS revised its €5.2 billion proposal, then valued at nearly $7 billion, three times and made plans to create a new pan-European competitor in the overnight-parcel-delivery market, but failed to satisfy the EU’s concerns.
People close to the FedEx case said it is “very finely balanced,” and that EU regulators have yet to decide whether to send a so-called statement of objections, setting out their provisional concerns. It is still possible, however, that regulators could clear the deal without demanding any changes, the people said.
Investors appear to be nervous about the deal. TNT’s stock has dropped 9% over the past two weeks and is languishing 15% below FedEx’s offer price of €8 a share.
A TNT spokesman said the transaction still is expected to close in the first half of 2016, as previously announced. “We’re convinced FedEx’s acquisition of TNT is pro-competitive, and will deliver benefits to our customers, given our complementary footprints,” he said in an e-mail.
A spokesman for U.S.-based FedEx said it, too, is confident the deal will close on schedule. “We continue to work constructively with the commission to obtain clearance of the transaction and are making timely progress on the necessary regulatory steps required around the world,” he added in an email.
Problems with the TNT deal would cause FedEx more investor unrest. Its stock has fallen 22% from an all-time high of about $185 in June after missing Wall Street expectations two quarters in a row, as well as lowering its full-year outlook in September.
The deal, announced in April, would position FedEx to capitalize on the growth of e-commerce in Europe by giving it an established door-to-door road network in the region that connects more than 40 countries.
The approval process has been complicated by UPS’s appeal of the EU’s decision to block its own bid for TNT, said people close to the FedEx deal. With a hearing in that case expected at the EU’s top court in Luxembourg before year-end, EU regulators are particularly eager to examine the current deal thoroughly, the people said.
FedEx has a smaller footprint in Europe than UPS and overlaps less with TNT’s existing business. They say their merger would help boost competition by creating a stronger competitor to UPS and DHL, the market’s dominant players.
If the merger is completed, FedEx would have an estimated 22% share of Europe’s international express-delivery market, based on data from DHL, making it the region’s third-largest package carrier in that category. That compares with a market share of 41% for DHL and 25% for UPS.
EU regulators opened a full-blown investigation into the deal in July, warning that the merged company would face “insufficient competitive constraints” in a number of European markets. The probe’s scope is broader than was the case with UPS, with regulators also looking at how the merger could affect delivery routes out of Europe.
The differences between UPS’s attempt to acquire TNT and FedEx’s are pronounced, said David Vernon, a transportation analyst at Sanford C. Bernstein & Co. UPS had been building its presence in Europe since the 1980s, and European regulators at the time of the UPS bid dubbed FedEx a “non-entity” in Europe, he said. “The regulator may come back with some objections, but they may be minor,” he said.
He said TNT’s declining stock price likely reflects pessimism about forthcoming regulatory objections, in addition to mirroring FedEx’s falling share price.
The EU’s new antitrust chief, Margrethe Vestager, has shown few qualms about taking on large companies if she suspects their behavior could lead to higher prices for consumers. Last month, Ms. Vestager blocked a mobile-telecom merger in her native Denmark that would have reduced the number of players to three from four, as would FedEx’s proposed merger.
“I’m not surprised at all that the European Commission is going to do a deeper dive,” said Kevin Sterling, a transportation analyst with BB&T Capital Markets. “I think they can’t leave any stone unturned since they rejected the UPS deal.”
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