UPS Strengthens Its EU Presence

Where are all those big brown United Parcel Service trucks I used to see all the time all over American streets? I remember asking myself this exact question several years ago when I first moved to Barcelona. UPS had become such a fixture in my mind's eye that it was a bit of a culture shock to not see the square vehicles as often as I previously had.

Eventually, I grew used to seeing DHL envelopes, MRW delivery vans parked on the side streets, and other companies' logos moving products around the region. I stopped dwelling on the who's who of the local market's logistics. Until last week.

Last week, a few business headlines flashed across my screen, and the old question about the company's European presence popped back into my head. This time, I thought, "Ah, fun. Logistics just got more interesting here."

UPS announced that it was buying Dutch-based TNT Express in an all-cash deal valued at about $6.9 billion. It's a sweet deal for TNT Express -- UPS is paying $12.61 per ordinary share for TNT, a 53.7 percent premium over the company's unaffected share price of $8.24.

But it's an even sweeter deal for UPS for a couple reasons. One is that it will have bigger slice of the European express delivery market. And, two, because of TNT Express' business inroads, UPS will strengthen its existing operations in fast-growing Latin American and Asia Pacific countries, namely Brazil and China.

Here's a snapshot of what the numbers could look like, once regulators approve the bid, according to a statement from TNT Express:

• The transaction will create a combined entity with more than €45 billion ($60 billion) in annual revenue;

• UPS estimates that the transaction will deliver an annual run rate of approximately €400 to €550 million ($525 to $725 million) of pre-tax cost synergies achieved by the end of year four after closing; and

• Following the transaction, around 36 percent of the combined group’s revenue will be generated outside the United States, up from 26 percent today at UPS.

The Motley Fool [log-in required] and the BBC -- citing research from various research organizations and company data -- sketched out these likely scenarios for express and normal package delivery:

The acquisition will increase UPS's share of European express deliveries to around 17.3 percent from the current 7.7 percent...This will also bring it closer to Deutsche Post's DHL unit, which holds 17.6 percent market share, and leave FedEx with a measly 3.3% share in the European region.
In terms of package delivery from Asia-Pacific to Europe, DHL is the dominant player, with more than 30 percent market share, followed by FedEx which has 25 percent...Both UPS and TNT have individually lagged behind the competition. However, as the two firms join hands, their combined market share of 28 percent will make them the second-biggest in the region and pose a serious challenge to DHL for the top slot.

In the bigger scheme, what does it mean? For electronics companies, increased competition will most certainly lead to more competitive pricing. For Europeans, the landscape is going to be shuffled as a major US player claims a bigger stake in local operations. And for me, it's like a little piece of home literally arrived on my doorstep.