FedEx AGM – love the bean counters more than the climate
Connecting the dots
GXO: SURGINGR: EASY DOES ITDSV: MOMENTUMGXO: TAKEOVER TALKXOM: DOWNGRADEAMZN: UNHARMEDEXPD: WEAKENEDPG: STEADY YIELDGM: INVESTOR DAY UPDATEBA: IT'S BADXOM: MOMENTUMFWRD: EVENT-DRIVEN UPSIDEPEP: TRADING UPDATE OUT
GXO: SURGINGR: EASY DOES ITDSV: MOMENTUMGXO: TAKEOVER TALKXOM: DOWNGRADEAMZN: UNHARMEDEXPD: WEAKENEDPG: STEADY YIELDGM: INVESTOR DAY UPDATEBA: IT'S BADXOM: MOMENTUMFWRD: EVENT-DRIVEN UPSIDEPEP: TRADING UPDATE OUT
European shippers are in favour of the proposed €4.4bn takeover of TNT by FedEx, it emerged this morning. Their reaction makes it more likely that EU authorities will approve the deal, which was announced yesterday.
Nearly 90% of the shippers asked are positive about the deal, said Joost van Doesburg, air freight policy advisor for the European Shippers Council.
“The European Commission always carries out fairly extensive research, and the opinion of the customer is always part of this research. When UPS and TNT announced their merger, 90% of the shippers responded negatively,” he said. “UPS and TNT were offering the same services in Europe. FedEx was never a real alternative to DHL Express, UPS and TNT. Besides this, TNT has a problematic cash flow. I think the European Commission will approve this merger.”
The management of both express companies were keen to point to benefits for their customers in yesterday’s press conference and analysts’ calls.
“The customers are the big winners here,” said David Bronczek, president and CEO of FedEx Express. “The combined companies will offer customers a complete portfolio of solutions.
“There were two strong players – now there will be three. The regulatory folks would like to see more competition. We are very confident about the European Commission, as the customer wins.”
FedEx added it was not expecting any significant requirements from authorities to get the deal approved, and that it expected its ground network costs to significantly reduce in Europe, another boost for customers.
Anthony Burgmans, chairman of TNT, explained that the deal, which appeared to have been put together in just six weeks, was “much simpler than the deal with UPS. The overlap there was much bigger.”
That also, he explained, was partly why FedEx’s offer was lower than UPS’s.
“There will be fewer synergies, and that is reflected in the price,” he said. “But the strategic fit is better. Last time we thought it was do-able, but complex. This time we are certain the deal will work in Brussels.”
FedEx needs to submit applications to regulatory authorities in China, Brazil and the EU, some 17 or 18 jurisdictions in all, and said it was looking into whether it might also be necessary in the US. It started talks with the EU yesterday afternoon, shortly after the announcement.
Exactly two years before the FedEx deal was announced, UPS said it was appealing the EU’s decision to block its takeover of TNT in court. FedEx said the outcome of that case would not affect its bid.
Under the terms of the deal, any other company has eight weeks in which to make a rival offer for TNT. If that exceeds the existing bid by 8%, FedEx’s deal will be terminated. FedEx said it was not expecting to see a rival offer.
FedEx must, under EU regulations on airline ownership, sell TNT’s carriers, TNT Airways and Pan Air Lineas. FedEx confirmed that it was in talks with several contenders, including ASL Group which had already agreed to buy the airlines if UPS had won the deal in 2013.
ASL was unavailable for comment, but it was reported that it had had no involvement in FedEx’s plan.
ASL CEO Hugh Flynn told The Loadstar in November, after it had acquired Farnair, that it had been forced to pursue growth in Europe in the passenger rather than freight markets, because “the EU’s weak backbone lets [the integrators] all fly here under relaxed arrangements”.
He added that, at the time, ASL was no longer eyeing acquisition targets. However, after the disappointment of the UPS deal, TNT’s airlines might prove too much of a opportunity to miss.
While it seems likely that much of the air operation would be centred on FedEx’s hub in Paris, management from both companies stressed that Liege would remain an important part of the new business. They were also at plains to point out that there would be no significant redundancies – in fact, the deal would offer more opportunities to employees, they claimed.
FedEx said it wanted to concentrate on cross-border e-commerce with the acquisition, but its immediate focus would be on integration. CFO Alan Graf said FedEx would invest heavily in the process, but that the deal would be “very revenue-accretive in the long term”, while it would take two years to restore FedEx’s credit position.
“Integration will take three or four years, but the benefits will far outweigh the integration costs.”
Fred Smith, chairman of FedEx, said the company had “long recognised the need for a complementary European ground network. TNT is an exact strategic fit and will dramatically lower our costs”.
And he justified the timing of the deal: “The exchange rate is favourable, and the EU economy appears to be growing a bit, fuelled by the lower price of oil and quantitative easing by the European Central Bank.
“We also have to give credit to Antony [Burgmans] and Tex Gunning [TNT CEO]. TNT has some terrific executives that we’ve come to know. We’ve been impressed at the steps they are taking.”
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