Three years ago, United Parcel Service (NYSE:UPS) called off its planned merger with Dutch rival TNT Express after the European Commission threatened to block the deal due to antitrust concerns.
Last April, FedEx (NYSE:FDX) stepped into the gap, striking its own deal to buy TNT Express for nearly $5 billion. This merger will make FedEx a much more formidable competitor globally -- and especially in Europe.
Not surprisingly, UPS fears this outcome. As a result, it has done everything within its power to prevent FedEx from consummating this critical merger.
FedEx merger gains approvals
After regulators signaled their worries about United Parcel Service's attempt to buy TNT Express a few years ago, UPS unsuccessfully tried to appease them with concessions. By contrast, FedEx hasn't even needed to offer significant concessions to get regulatory approval for its merger plans. So far, all it needs to do is sell TNT's airline operations, due to Europe's restrictions on foreign ownership of airlines.
UPS lobbied hard against the merger in Europe, arguing that regulators shouldn't allow FedEx to buy TNT given that they had rejected UPS' own takeover attempt a few years earlier. However, FedEx is a much smaller player in Europe than UPS, lessening the competitive impact of a FedEx-TNT tie-up.
As a result, in October, the European Commission informed FedEx and TNT that it didn't plan to object to the merger. The formal approval followed in January. The two companies also gained approval from U.S. regulators in November, although that was never in doubt, as TNT doesn't have a significant presence in the United States.
UPS files an appeal
Most recently, regulators in Brazil gave FedEx and TNT Express the go-ahead to merge on Feb. 2. However, Brazilian law gives other companies the right to request a more in-depth review, and UPS jumped on this opportunity to potentially disrupt the acquisition.
This appeal is a long shot, even though TNT is a major player in the Brazilian express delivery market. However, UPS is running out of options as it tries to block the deal -- or at least force FedEx to divest some assets -- so it's seizing every opportunity to challenge the merger. FedEx does not expect the appeal in Brazil to impact its goal to close the acquisition by mid-2016.
China is the last key market where FedEx and TNT Express need to win regulatory approval for their merger. The Chinese antitrust review process is a bit of a wild card. While FedEx expects to get approval, China could potentially delay the merger either through substantive objections or by simply dragging out the process for a long time.
However, China is likely to approve the merger eventually. At some point, there won't be any more cards left for UPS to play. UPS investors should hope that the company's management is focused on figuring out how to compete with a bigger FedEx rather than cooking up more desperation attempts to block the FedEx-TNT merger at the eleventh hour.