European Commission Sets New Decision Date For Merger of FedEx, TNT
The European Commission’s in-depth review of the $4.9 billion merger proposal from FedEx Corp. and TNT N.V. is set for a Jan. 13 decision.
The companies earlier this month requested 20 additional working days for the EC’s review of their proposal, a spokeswoman for FedEx confirmed, without saying why the extension was requested.
The initial date for the decision by the commission was Dec. 8. Two years ago, the commission turned down a UPS Inc. bid for TNT, the Dutch package and freight operator, saying that deal would unacceptably reduce competition.
FedEx and TNT on April 7 announced their proposed combination, saying the move would expand FedEx’s global network, increase efficiency and improve service. The EC, on July 31, announced an in-depth review, known as a Phase II investigation, of FedEx’s proposal to pay about $9 per share for TNT, which has struggled to remain profitable in recent quarters.
“The parties have requested a 20-day extension for the Phase II investigation, as they are entitled to do according to the merger regulation,” commission spokesman Ricardo Cardoso said. The EC’s July 31 statement said in “a number of European markets for international express and regular [so-called ‘deferred’] small-package deliveries, the merged entity would face insufficient competitive constraints from the only two remaining players [UPS and DHL]. This could lead to higher prices for business customers and consumers.”
The EC also noted that the Phase II review “does not prejudge the outcome of the investigation.”
FedEx and TNT have expressed confidence that the EC will approve their deal and have said they can address any antitrust concerns that may arise.
The reduction in companies serving Europe could lead to a “concentrated market in several member states for international express delivery services to a destination within or outside the European Economic Area,” the EC also said.
A study by Dutch banker ING found that a combined FedEx and TNT could command 17% of the European package market, compared with 19% for DHL and 16% for UPS.
TNT’s profit margin for the first half of 2015 was 1.2%, based on the second-quarter earnings report of the Hooffddorp, Netherlands-based company, whose operating income fell more than 60% to about $47 million. By comparison, FedEx’s latest earnings report, issued June 18, topped $2 billion for the six month period ended May 31, reflecting a profit margin of about 9% companywide. FedEx revenue more than tripled TNT’s for the most recent fiscal years of each company.
The acquisition agreement includes a pledge to divest TNT’s airline unit. TNT Airways has 50 planes, according to the company. FedEx plans to add at least 50 new longhaul Boeing Corp. freighters to its current air fleet of 647 planes and retire more than 50 older planes in the next six years.
FedEx and TNT haven’t re-leased detailed information about acquisition-related benefits, and the companies aren’t required to do so under European merger review procedures. The companies have pledged to respect current TNT staffing levels and maintain its hub at Liege, Belgium.
In the United States, most transport mergers are reviewed by the Department of Justice, which also considers material in the application to be confidential.
Phase II is used for fewer than 10% of all merger proposals, according to the European Commission. Once the review is completed, the agency must approve, reject or approve merger proposals with specified remedies meant to maintain competition.
UPS’ $6.8 billion offer for TNT was rejected because the EC feared reduced competition in 15 countries. UPS appealed that decision in April 2013, and is awaiting a ruling from the European Union’s General Court.
UPS believes the EC’s assessment of the express industry in its case was flawed, company spokeswoman Susan Rosenberg said, because it ignored evidence of strong existing competition in express and freight markets and wrongly focused its review on next-day deliveries.
“We do expect the EC to be as stringent in reviewing the proposed FedEx-TNT deal as they were in evaluating our proposal,” she told TT.
UPS and FedEx rank No. 1 and No. 2 respectively on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.
