TNT results weaken case for higher UPS bid

AMSTERDAM Tue Feb 21, 2012 7:37am EST

A vehicle of Dutch TNT is seen in Haarlem August 11, 2008. REUTERS/Sander Koning/United Photo

A vehicle of Dutch TNT is seen in Haarlem August 11, 2008.

Credit: Reuters/Sander Koning/United Photo

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AMSTERDAM (Reuters) - Dutch freight and delivery group TNT Express (TNTE.AS) posted weaker-than-expected results and highlighted a bleak economic outlook, undermining its attempts to extract a higher price from suitor United Parcel Service (UPS.N) and attract others.

TNT, which said on Friday it was still in talks with UPS after rejecting a 4.9 billion euro ($6.5 billion) bid, swung to a fourth-quarter operating loss, hit by an impairment charge at its troubled Brazilian business, where it has struggled to integrate acquisitions.

TNT said on Tuesday it would look for buyers or partners for both Brazil and its Chinese unit in order to focus on Europe.

At 1050 GMT, its shares were down 2.4 percent at 9.9 euros. That is still above the 9 euros per share offered by UPS, but is below Monday's peak of 10.24 euros, reached amid speculation UPS might have to offer much more to clinch a deal or that U.S. rival Fedex (FDX.N) might make a counterbid.

"The dip in this morning's share price reflects prudent profit-taking but also a nervousness that unless FedEx enters the fray, TNT may struggle to solicit much more than 10.50 euros from UPS," said Alex White, corporate finance partner at accountants BDO.

"There seems little new information TNT can leverage in its price negotiations with UPS."

TNT, under fire from activist shareholders to improve its performance, reported a fourth-quarter operating loss of 104 million euros, after a profit of 24 million in the 2010 period, as it took an impairment charge of 104 million euros on its business in Brazil and a 45 million impairment on aircraft.

Adjusted underlying earnings before interest and tax (EBIT) were 57 million euros on quarterly revenue of 1.87 billion euros. Analysts in a poll commissioned by Reuters had forecast a fourth-quarter underlying operating profit of 61.2 million euros and revenue of 1.85 billion euros.

VOLTE FACE

TNT chief executive Marie-Christine Lombard has staked her reputation on turning round the troubled operations in Brazil, where TNT has struggled to integrate Expresso Mercurio, which it bought in 2007, and its delivery partner Expresso Aracatuba, acquired in 2009.

But on Tuesday, Lombard said TNT was now looking for "commercial partnerships, joint ventures, or a sale" for both Brazil and China.

"It's a complete volte face," Gert Steens, analyst at SNS Securities, said.

"The only reason to buy TNT is the European business. They've been diluting the value of the European business by spending so much time and money elsewhere. This just confirms no one is going to pay" for Brazil and China, he added.

On a conference call with journalists, Lombard declined to comment on the talks with UPS, and would not say whether TNT had been approached by any other potential buyers, including FedEx.

She warned the economic environment remained very uncertain, with a risk of a recession in Europe and a slowdown in Asia, and said TNT would continue to reduce costly fixed capacity on intercontinental routes in favor of more flexible arrangements like subleasing planes and sharing capacity.

TNT said it planned to cut 150 million euros in costs by the end of 2013, while taking 150 million euros of restructuring expenses and writeoffs.

"We ... do not expect the UPS proposal to increase significantly and we doubt TNT could deliver the value implied by the UPS proposal for several years due to the depressed economic climate in the EMEA (Europe, Middle East and Africa) region that is key to profitability and the difficult issues still to be resolved in the Brazilian and Chinese markets," Citi analyst Roger Elliott said in a research note.

($1 = 0.7538 euro)

(Editing by Dan Lalor and Mark Potter)

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