Please ensure Javascript is enabled for purposes of website accessibility

UPS Tries to Spoil the FedEx-TNT Merger

By Adam Levine-Weinberg - Mar 2, 2016 at 10:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

UPS is lobbying hard across the world to stop FedEx from buying TNT Express, but its efforts aren't likely to succeed.

Three years ago, United Parcel Service (UPS -0.22%) 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 (FDX 0.31%) 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.

FedEx is close to completing the acquisition of TNT Express.

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.

UPS is trying hard to stop the FedEx-TNT merger.  

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

FedEx Corporation Stock Quote
FedEx Corporation
FDX
$228.43 (0.31%) $0.70
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
UPS
$184.76 (-0.22%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
322%
 
S&P 500 Returns
113%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.