FedEx agrees to buy TNT Express for €4.4bn

FedEx struck a €4.4bn deal for struggling competitor TNT Express in a bet that it can expand its presence in Europe and avoid the regulatory concerns that prevented rival UPS from pulling off the same transaction.

The takeover would combine the number three and four delivery groups in Europe by market share, expanding FedEx's foothold in a region where the US group has struggled to gain traction against leaders DHL and UPS.

Fred Smith, FedEx's chairman and chief executive, said the timing of the deal with the Netherlands-based company was influenced by the strength of the US dollar as well as signs that lower oil prices and the European Central Bank's monetary stimulus were delivering a boost to Europe's economy.

An agreed combination came together in less than seven weeks, people familiar with the discussions said, with talks having kicked off just after TNT warned of further restructuring due to poor conditions in its core western European markets.

FedEx will pay €8 a share for TNT under the terms of the all-cash deal, which values the Dutch company at €4.4bn. It represents a 33 per cent premium to TNT's closing share price before the long Easter weekend.

Both sides on Tuesday attempted to convince investors that the deal would overcome any regulatory scrutiny in Europe. UPS abandoned a €5.2bn takeover attempt of TNT in early 2013 as it faced stiff opposition from Europe's then antitrust chief.

"This is a much simpler deal than the UPS deal," said Antony Burgmans, chairman of TNT. "The overlap [with UPS] was significant. This means the [cost-saving] synergies will be less, which is reflected in the price, but the strategic fit is better."

Christine Richards, general counsel at FedEx, said: "We are very confident that we will be able to obtain EU approval, but we will have to go through the process."

DHL, which is owned by Deutsche Post, had a 19 per cent market share in Europe, based on 2013 industry data, compared with UPS on 16 per cent, TNT on 12 per cent and FedEx on 5 per cent, according to Allan Smylie, an analyst at Davy.

Analysts at RBC Capital Markets said that the two companies should be able to complete the deal by the first half of 2016 as planned, given that they have prior knowledge of antitrust hurdles and the unlikely prospects of a counterbid.

A break fee of €200m will be payable to TNT if FedEx does not receive regulatory clearance or walks away from the deal. TNT must pay €45m to FedEx in the event it receives and accepts a better offer.

Shares in FedEx climbed 2.9 per cent to $171.55 by midday in New York, while TNT rose 28.1 per cent to €7.69 in Amsterdam trading.

As part of the deal, the two companies would need to sell TNT's airline operations. FedEx, which has more than 660 aircraft in its global fleet, said that TNT's European road network - which connects more than 40 countries through 19 road hubs and over 550 delivery depots - would be "highly complementary".

The deal comes as international couriers struggle to adapt to the rise of ecommerce, which has put pressure on their delivery systems.

TNT has struggled since European regulators blocked the proposed takeover by UPS. It reported a €137m net loss for the final quarter of 2014, which it blamed on mounting restructuring costs. Nearly 10 per cent of TNT's shares were on loan to short sellers - investors betting against a rise in a company's share price - according to data from Markit.

FedEx delivers about 10.5m shipments globally every day, compared with TNT's 1m. The US group has been expanding in Europe, opening about 100 delivery stations across 11 countries since 2011.

FedEx was advised by JPMorgan Chase. TNT Express was advised by Goldman Sachs and Lazard.

Additional reporting by Jennifer Thompson and Christian Oliver

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