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UPS snags Europe's No. 2 package-delivery outfit

Published:Tuesday | March 20, 2012 | 12:00 AM

UPS is giving a vote of confidence to Europe with its US$6.77 billion purchase of Dutch rival TNT Express, the company's biggest deal ever.

After weeks of negotiations, the world's largest package delivery company on Monday locked in a deal for Europe's No. 2 express mail company. Although TNT has struggled during the European financial crisis, it allows UPS to better compete with Germany's DHL and gives it between one-quarter and one-third of the vast European package delivery market, according to some analysts' estimates.

The deal also allows UPS to expand in growing markets such as Brazil, and comes at a time when business is picking up in the United States (US).

UPS entered the European market with service to Germany in 1976 and has since acquired a number of smaller companies to expand. UPS says the continent is ripe with opportunity, despite the current financial turmoil. It points to strong European exports and an express package market that's growing three times as fast as the overall economy. Businesses are also clamoring to become more efficient - a service UPS offers through its supply chain unit.

Stifel Nicolaus analyst David Ross expects that UPS and TNT together will have between 25 and 30 per cent of the European small package market. The combined company will pass DHL in size. As UPS grows, consumers and businesses will likely pay more to ship packages because there will be less competition around the globe.

UPS currently gets about 26 per cent of its sales from outside the US. That will grow to 36 per cent with TNT. UPS hopes to further boost its international sales to 50 per cent in the next five years.

Catalyst to growth

JPMorgan analyst Thomas Wadewitz said the deal will launch UPS from a third-place position in most major European markets to first or second behind DHL. He upgraded UPS' stock to 'Overweight' or 'Buy', saying the TNT deal will provide a "significant catalyst to growth" in 2013 and 2014. UPS reported stronger-than-expected growth for the last three months of 2011.

UPS shares rose $3.30, or 4.2 per cent, to US$81.71 in afternoon trading.

The deal works out to US$12.55 (€9.50) per share, 54 per cent higher than TNT's closing price the day before the companies confirmed they were in talks.

UPS, which is based in Atlanta, has nearly 400,000 employees worldwide and will add about 75,000 from TNT. UPS had total sales of US$53.11 billion last year; it expects to post annual sales with TNT of about US$60 billion.

UPS traces its roots back to 1907 when two teenage entrepreneurs started a messenger service in Seattle with a US$100 loan.

- AP