FedEx Corporation’s FDX bid to acquire Dutch delivery firm TNT Express N.V. TNTEY for approximately $8.75 per share, or $4.8 billion (€4.4 billion), seems to have run into rough weather following concerns raised by the European Commission (EC) about competition being restrained in the event of the deal materializing.
In view of the above concerns, the EC – the antitrust watchdog of the European Union – announced on Jul 31, that it would launch a thorough investigation to find out whether the impending deal, involving two key global players in the field of small package delivery, abides by the EU Merger Regulation. The deal was announced in April this year.
The EC is concerned that the combined entity, if it comes into existence, would dominate the market for small packages, thereby stifling competition in the space. As a result of the dominance, prices would soar, causing inconvenience to consumers and business customers alike. The EC is of the view that apart from businesses like e-commerce which are highly dependant on affordable and reliable small package delivery services, many consumers too rely on these services to ensure rapid and safe delivery of their purchased goods.
The regulator believes that in the event of the deal materializing, the other two key players (integrators) in the field of small packages in the European market, namely United Parcel Service UPS and DHL Worldwide Express, will not be able to provide sufficient contest to the merged entity, thus leading to impoverished competitive spirit within the space.
The integrators control a large air and road delivery network in Europe and beyond. Moreover, they offer a wide portfolio of small package delivery services. In the event of FedEx acquiring the Dutch company, only three integrators would be left competing in the European Economic Area (EEA).
The EC believes that insufficient competition before the merged entity would lead to a concentrated market in many Member States with regard to international express delivery services to destinations within or outside the EEA. Moreover, according to the initial investigation of the EC, the combined entity would serve as the dominant force commanding very high market shares for services to some ex-EEA destinations leading to potential competition worries.
At present, the EC plans to thoroughly investigate the proposed deal before finally deciding whether to give it a nod. The EC will assess the graveness of the concerns cited and has 90 working days to complete investigations. However, both FedEx and TNT Express are apparently confident of the deal closing in the first half of 2016, as scheduled. We note that the deal is also under review in markets such as China and Brazil. Notably, FedEx had first notified the EC about the deal on Jun 26, 2015.
Red Flag Raised by European Regulators Earlier as Well
We note that TNT Express had been an acquisition target earlier as well when UPS had intended to buy the Dutch company. However, the deal had failed to materialize, thwarted by European regulators citing antitrust concerns. The regulators had blocked the deal quoting UPS’ massive European presence. They were of the opinion that the materialization of the deal would lead to limited competition in the European delivery market.
Will FedEx’s attempt to take over TNT Express meet the same fate as UPS’ effort? We expect investors to keenly await the answer to this question in the near term.
Zacks Rank
FedEx currently has a Zacks Rank #3 (Hold). A better-ranked stock in the sector is Atlas Air Worldwide Holdings, Inc. AAWW. The stock carries a Zacks Rank #2 (Buy).
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