Why Did UPS Lose TNT Express?

The European Commission effectively quashed United Parcel Service’s (NYSE:UPSproposed acquisition of TNT Express over the weekend, leaving both companies in a weakened position, both structurally and monetarily, though TNT is facing a decidedly worse scenario, with shares plunging 43 percent on the news.

For UPS, the acquisition of TNT Express meant a significant boost in operations within Europe. UPS believed the combination of the two companies would have been a significant step forward in logistics around the world. Now UPS will go back to the drawing board, looking for another way into Europe, which could take a lot longer and require a lot more risk.

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But the ramifications for TNT Express are perhaps more critical. Alone, the company had been having difficulties with falling demand in the past years — among other issues. Its market share is believed to have eroded during acquisition talks with UPS. TNT Express had hedged its bets with the acquisition by UPS, with its chief executive leaving the company soon after UPS made the offer. As another acquisition doesn’t seem likely at this point, TNT Express will have to develop a new business strategy to regain its footing, and it will need a new chief executive…

The two companies reported that the European Commission, the European Union’s executive body, told them it was working on a decision to prohibit the proposed acquisition. Though no official decision has been made — EC competition policy spokesman Antoine Colombani said a decision would be made in “due time” with a deadline of February 5 — UPS and TNT Express have no choice but to abandon the acquisition.

The news didn’t have much of an impact on UPS shares, which were actually up more than 1 percent Monday morning to one of their highest points since July 2012. TNT Express took a little more damage from the news. Its share price fell dramatically when it became clear UPS wouldn’t be acquiring the company, going from over 9 euros — UPS was offering 9.50 euros per share — down to almost 4 euros on the Amsterdam exchange in a matter of minutes. The drop amounted to a 2 billion euro loss in the company’s value. For UPS, backing away from the deal may be far less costly, as it will likely pay only a $200 million break-up fee.

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