FedEx Corporation FDX – a leading player in the field of global express delivery services – is looking to acquire Dutch delivery firm TNT Express N.V. TNTEY for approximately $8.75 per share or $4.8 billion (€4.4 billion).
The all-cash deal is expected to close in the first half of calendar 2016. The offer price represents a significant premium (33%) over TNT Express’ Apr 2 closing price. While TNT Express’ shares jumped 26.1% on the news of the conditional agreement, FedEx shares gained 2.69%.
FedEx intends to fund the deal through its available cash balance, raising new debt apart from existing debt arrangements. The deal has a breakup fee attached to it. Following the completion of the merger, the European regional headquarters of the combined entity will be located in Amsterdam/Hoofddorp.
How will FedEx Gain?
The proposed TNT Express acquisition is expected to significantly expand FedEx’s scale of operations, particularly in Europe. In the event of the deal materializing, FedEx will be able to strengthen its position in the lucrative e-commerce business. Consequently, the deal is in line with FedEx’s ambitions to fortify its footprint in Europe.
Customers stand to benefit immensely from the merged entity as it will offer an enhanced and integrated network across the globe. Following the completion of the deal, FedEx will gain from TNT Express’ robust European operations. This will help it establish its position as one of the leading carriers in Europe. The expansion of its capabilities will enable FedEx to compete more effectively with rivals like United Parcel Service Inc. UPS that has a substantial European footprint. The deal will also offer substantial cost savings to FedEx, thereby benefiting its long-term growth.
Strong Dollar to Benefit FedEx
FedEx has timed its offer to acquire the Dutch company perfectly given the strength of the dollar and subsequently, a favorable exchange rate versus the euro. This is highlighted by the fact that FedEx’s offer price for TNT Express is substantially lower than UPS’ offer to buy the Dutch company a couple of years ago. Back then, UPS had offered to buy TNT Express for approximately $7 billion. Clearly, the favorable exchange rate makes FedEx a winner especially in view of the huge benefits the materialization of the deal will provide to the company.
Will UPS' Loss be FedEx' Gain?
We remind investors that UPS’ efforts to acquire TNT Express had been thwarted by European regulators due to antitrust concerns voiced by them. The regulators had blocked the deal citing 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. However, FedEx has higher chances of winning the green signal from European regulators given the lower degree of overlap between FedEx and the Dutch company. Additionally, according to air-transport rules, FedEx will have to sell TNT Express’ airline once the companies are merged. We expect investors to remain glued to updates regarding the FedEx-TNT Express deal, going forward.
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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