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Takeaway: FDX has never played nice in the competitive sandbox. Scuttling the UPS/TNT deal allows FDX to buy all of TNT and keeps the assets from UPS.

FedEx Fails To Approve UPS/TNT

  • Aggressive Competitor:  FedEx has never been one to play nice in the competitive sandbox.  It seemed likely to us that UPS would do whatever deal was needed with FDX to secure regulatory approval.  UPS probably assumed that FedEx would want industry consolidation and choice European assets.  Apparently, however, FDX wouldn't pick up the phone.  FedEx probably wanted to both scuttle the deal and get TNT for itself.
  • FedEx the Only TNT Buyer We See:  At some point, FedEx is likely to buy TNT.  FDX is the only credible buyer and TNT has some assets that fit well into FedEx.  That part of our thesis hasn't changed.  FedEx buying the whole of TNT on the cheap is probably a better outcome than picking up UPS’s crumbs.

FedEx Fails To Approve UPS/TNT - eu1

  • TNT Should Want To Sell:  Given the management turnover and lack of strategic direction at TNT, the company will either sell or languish, in our view.  The Express & Courier industry is populated by sophisticated, scale competitors.  TNT is a weak #4, in our view.
  • FedEx Playing Long Game:  TNT in its entirety fits better with FedEx than just select TNT European assets.  A TNT deal with FDX would expand FedEx in Asia, in addition to better balancing its global network.  Perhaps as importantly, FedEx kept those assets away from UPS.  Aside from delay and annoyed regulators, scuttling the deal has cost FDX little.
  • Wait And See: If we had to guess, FDX will bid for TNT pretty quickly.  TNT Express is likely in disarray and the assets may deteriorate if FDX waits too long.  The price of the transaction is well within FedEx’s capability and we expect a bid in coming months.

FedEx Fails To Approve UPS/TNT - asia2