FedEx Corporation’s (NYSE:FDX) $4.8 billion deal today for Dutch counterpart TNT Express NV (OTCMKTS:TNTEY) isn’t anywhere near the biggest mergers and acquisitions of recent years … but it already looks like a sure thing to be the most successful.
The widely praised acquisition of TNT by FedEx is almost too good to be true, for both the companies involved and the broader landscape for mergers and acquisitions.
Just consider all that FedEx achieves in one stroke: FDX greatly expands its European business (where it lags competitors by a wide margin); FDX sticks it to United Parcel Service, Inc. (NYSE:UPS), which failed to acquire TNT a couple of years ago because of regulatory obstacles; and it marks open season on U.S. companies going deal shopping in Europe.
On that last point, it’s remarkable we haven’t seen more mergers and acquisitions of European assets — or at least the kind that isn’t a gambit to avoid paying U.S. taxes. After all, the dollar is at a 15-year high against the euro. From the point of views of U.S. corporations — and, indeed, anyone holding greenbacks — the entire eurozone is on sale.
FDX is paying $4.8 billion for TNT. Had it struck this same deal a year ago, the price tag would have been more than $6 billion. Heck, when UPS thought it had a deal with TNT two years ago, the cost was nearly $7 billion.
Yikes.
Mergers and acquisitions are back at levels not seen since before the financial crisis, and the FedEx-TNT deal is sure to add fuel to the fire. After all, mergers and acquisitions tend to lead to more mergers and acquisitions even without the currency benefit.
You can be sure a wide swatch of U.S. companies are looking at terms of the TNT acquisition and getting ideas of their own.
FDX Expands International Ops
As for FDX specifically, the TNT acquisition immediately expands a sought-after expansion of its European ground business. The international delivery market is growing faster than the U.S., but roughly 60% of FDX revenue comes from domestic shipping. TNT, which derives three-quarters of its revenue from Europe, boosts FDX’s revenue from international overnight.
Best of all for shareholders, between revenue gains and cost cuts, the deal should be accretive to FDX earnings in short order. No wonder FedEx stock jumped on the deal news.
So where could this deal go wrong?
It’s possible European regulators could put a stop to FDX-TNT, just as it derailed UPS earlier. But that looks unlikely because FDX has promised to sell TNT Express’s air cargo unit. FDX doesn’t need more air cargo business, which has been sluggish for years.
It’s also possible that UPS could step in with a counter bid. It was willing to pay more than the deal price when it put TNT in play.
Assuming the deal goes through, FedEx still faces plenty of challenges with TNT. After all, the European economy is still pretty weak. TNT hasn’t booked a full-year of profits in three years.
Bottom Line
If the FedEx-TNT deal comes to fruition, it’s a big win for the U.S courier. And given the bargain price, it could also be a boon for more trans-Atlantic mergers and acquisitions.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
