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Is the FedEx-TNT Deal a Threat to UPS?

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FedEx-TNT deal

FedEx (FDX) offered to purchase TNT Express, a Dutch company, for an all-cash deal of $4.8 billion. The deal aims to provide FedEx with a strong hold in the European market. In this market, the company falls behind other key players like DHL, United Parcel Services (UPS), and TNT Express. The company expects to garner the largest market share when its global reach combines with TNT’s strong road network in the nation.

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Effects on UPS

The European economy’s financial crisis has opened new business opportunities for logistics companies that seek expansion by making use of the weak euro. Currently, UPS is the second largest logistics player in Europe. However, a possible FedEx-TNT deal could mean that UPS might lose its position. The four majors—DHL, FedEx, UPS, and TNT Express—hold about 80% of the market share in Europe. The deal would give FedEx the competitive edge and market lead against rival UPS.

Major international players that compete with UPS include FedEx (FDX), TNT Express (TNTEY), Deutsche Post (DPSGY), and Yamato Holdings (YATRY). UPS forms 3.59% holdings of the Industrial Select Sector SPDR ETF (XLI). Competitors in the US include Air Transport (ATSG), C.H. Robinson Worldwide (CHRW), and Con-way (CNW).

UPS will have to strengthen its last mile services and residential parcel delivery services since FedEx lacks these strengths in Europe. TNT is also a business-to-business logistics provider.

Deal issues

Recently, the FedEx-TNT deal has experienced some challenges. The European Commission opened an investigation to see if the acquisition is in accordance with the law. The commission fears that the deal would lower the number of competitors. This could result in higher prices for consumers. This is similar to how UPS’s bid to acquire TNT Express was rejected in the past.

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