REFILE-UPDATE 3-TNT sees hurdles in private sale of mail

Mon Aug 2, 2010 10:42am EDT

(Refiles to fix order of words in second paragraph)

* Says to split units by Jan. 2011

* Q2 EBIT down 69 pct to 55 mln euros * Dragged down by costs in express unit

* Shares fall 2.5 pct, underperforming market

(Recasts, adds CEO interview, details; updates shares)

By Greg Roumeliotis

AMSTERDAM, Aug 2 (Reuters) - European delivery group TNT's TNT.AS chief executive said on Monday he saw challenges to a private sale of its postal unit after the company said it would split its mail and express units by next year.

Peter Bakker told Reuters that while it was open to all offers, private equity and trade buyers could find an acquisition of its mail unit difficult. TNT has said it is also looking at an initial public offering as a way for the Dutch company to spin off the mail unit.

"How does private equity weigh up with one of the largest workforces in the Netherlands? I don't know how ready the Netherlands is to put its postal company in the hands of private equity," Bakker told Reuters in an interview.

Despite a drive to liberalise the European postal market, there is no track record of mail acquisitions among trade buyers, Bakker added.

The company said the separation of its divisions is scheduled to be implemented Jan. 1, 2011, and a capital markets transaction will follow to separate the equity, though all options were open.

That would leave TNT, currently Europe's second largest post and logistics firm after Deutsche Post (DPWGn.DE), as a global express delivery company, which is rumoured to be a target for larger rivals FedEx and UPS.

"If in the meantime somebody else, whether it is private equity on the mail side, or an American on the express side think they can create more value, all they need to do is call," Bakker said.

DISAPPOINTING RESULTS

TNT shares were down 2.5 percent at 22.325 by 1322 GMT, off earlier lows but the biggest decliner on the STOXX Europe 600 index .STOXX, as analysts said the company's second-quarter figures were a letdown.

"Disappointing results, fully concentrated in express (mostly yields, but also volumes)," Kepler Capital Markets analyst Andre Mulder wrote in a note. "We will lower our numbers for this division and the company as a whole."

TNT said it was hit by a 168 million euro provision related to its Dutch mail restructuring plan. It would have missed forecasts even without the charge, as underlying operating profit in its express division came in at 73 million euros, a 16 percent increase but less than the 105 million mean estimate in a Reuters poll.

TNT said second-quarter operating profit dropped 69 percent to 55 million euros, far below the 235 million expected by analysts in the Reuters poll, on revenue up 9.6 pct to 2.77 billion euros, which was nearly in line with the mean estimate of 2.74 billion in the poll.

"We knew from the consensus estimate for express that people had very high hopes, fuelled by the results of the American companies," CEO Bakker said. "But the U.S. competitive landscape is completely different from Europe, UPS and FedEx dominate their market and have a lot of pricing power. Also the recovery in the U.S. is clearly ahead of that in Europe."

U.S. rivals FedEx (FDX.N) and UPS (UPS.N) last month raised their outlook as more cargo flowed through their networks.

NEW CFO

TNT said it had taken measures to improve profitability in express, such as increasing prices in Europe by an average 3.5 percent, but warned their full effect would not be felt until 2011.

TNT also announced the position of chief financial officer, vacated by Henk van Dalen, who went to VimpelCom, would go to Finance Director Bernard Bot. Bot has been heading the separation of express and mail

Analysts have named private equity firm CVC Capital Partners, which owns part of Belgium's mail service, as a potential buyer of TNT's mail unit but TNT's CEO was sceptical.

"Private equity could have an interest in mail. But it is not as if mail is an underperforming asset and private equity can a do a lot more with it in terms of optimisation. The game has also changed in the leverage private equity can attract, limiting the size and scope of deals," CEO Bakker said. (Additional reporting by Ben Berkowitz; Editing by Jon Loades-Carter, Louise Heavens and Karen Foster)

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