Overview -- United Parcel Service (UPS) has announced its financing plan for its proposed acquisition of TNT Express N.V. It also announced that it expects to spend $1.5 billion on share repurchases in both 2012 and 2013. -- We are keeping our ratings on UPS on CreditWatch with negative implications, where we had placed them after UPS first announced the acquisition plan. -- We are also evaluating UPS' exposure to multiemployer pension plans (MEPPs). This liability, which we view as a debt equivalent, has increased as a result of record low interest rates and low asset returns. -- Based on an evaluation of the company's proposed transaction financing, share repurchase plans, MEPP exposure, and TNT Express integration plan, we believe a downgrade would be limited to one notch. Rating Action On May 4, 2012, Standard & Poor's Ratings Services said that its ratings on United Parcel Service Inc. (UPS) remain on CreditWatch with negative implications, where we had placed them on Feb. 17, 2012. Rationale UPS announced on May 3, 2012, that it plans to finance the TNT Express transaction with $5 billion of cash and $1.8 billion of debt. It also announced that it plans to repurchase $1.5 billion of shares in both 2012 and 2013. UPS announced on March 19, 2012, that it had reached an agreement to acquire TNT Express N.V. (BBB+/Watch Pos/A-2) for EUR9.50 per share in cash, or an estimated $6.77 billion. We originally placed our UPS ratings on CreditWatch with negative implications on Feb. 17, 2012, after UPS acknowledged that it had made a proposal to acquire TNT Express for EUR9 per share in cash. TNT Express rejected the initial proposal but subsequently agreed to the sweetened deal. UPS originally announced that it planned to finance the acquisition with $3 billion of cash and to use debt to finance the rest. It has revised that plan and now expects to use $5 billion of cash and $1.8 billion of debt to fund the transaction. At the time it announced the deal, UPS stated that it expects EUR400 million-EUR550 million ($525 million-$725 million) in annual run rate savings after year four, but will spend EUR1 billion ($1.31 billion) to achieve those synergies. We believe the transaction will enhance UPS' business profile by bolstering its position in Europe and providing it with growth opportunities in other international markets where it currently has limited presence. However, the transaction will initially cause a deterioration in credit metrics. UPS' financial profile has also been weakened somewhat by multiemployer pension plans, which have become more of a potential burden. Still, based on our current understanding of the economics of the deal, we believe any downgrade likely would be limited to one notch. UPS is the world's largest package delivery company, with a significant presence in all major global markets. TNT Express is a smaller package delivery company that generates the majority of its revenues in Europe. TNT Express was spun off from TNT N.V. (now PostNL N.V.) in June 2011. The combined entity would generate annual revenues of more than $60 billion. The deal is subject to various approvals, including regulatory approval and shareholder approval. PostNL N.V. holds approximately 29.8% of the shares of TNT Express and has committed to supporting the transaction. CreditWatch Standard & Poor's will monitor the regulatory and shareholder approval process and will resolve the CreditWatch once the transaction's terms and conditions are finalized. Any negative rating action likely would be limited to one notch, based on the company's proposed transaction financing, TNT Express integration plan, share repurchase plans, and multiemployer pension plan exposure. Although UPS does not expect the deal to close until the third quarter of 2012, we may provide indicative ratings before then, based on an assumption that the transaction goes forward as proposed. Related Criteria And Research -- What's Driving Standard & Poor's Ratings On United Parcel Service (CreditMatters TV), March 22, 2012 -- Research Update: United Parcel Service 'AA-' Ratings Remain On CreditWatch Negative On The Company's Agreement To Acquire TNT Express, March 19, 2012 -- Research Update: UPS 'AA-/A-1+' Ratings Placed On Watch Negative After Announcing Proposed Acquisition Of TNT Express N.V., Feb. 17, 2012 -- Will Mounting Funding Pressures On Multiemployer Pension Plans Hurt Issuers' Credit Quality?, June 9, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- Standard & Poor's Approach to Analyzing Employers' Participation in U.S. Multi-Employer Pension Plans, May 30, 2006 Ratings List Ratings Remaining On CreditWatch United Parcel Service Inc. Corporate credit rating AA-/Watch Neg/A-1+ Senior unsecured AA-/Watch Neg Commercial paper A-1+/Watch Neg United Parcel Service of America Inc. Corporate credit rating AA-/Watch Neg/A-1+ Senior unsecured AA-/Watch Neg Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.