May 25, 2011 / 10:16 AM / in 6 years

Q+A-Split of Dutch mail and express group TNT

5 Min Read

AMSTERDAM, May 25 (Reuters) - Dutch postal service operator TNT TNT.AS is spinning off its international division, leaving the former state mail monopoly to fend for itself.

Europe's second-largest mail and express delivery group after Deutsche Post (DPWGn.DE) will split as of June 1, subject to shareholder approval, into a global delivery group called TNT Express TNTE.AS and rebranded mail company PostNL.

Why Is This Happening?

TNT says the mail and express businesses are too diverse and offer too few synergies to keep under one roof.

PostNL faces a continuously declining mail market in the Netherlands and has to focus on sustaining its cash flow by increasing efficiencies, renewing business and cutting costs.

TNT Express has to grow and become more profitable in emerging markets, resolve operational issues at acquired businesses and improve yields as it strives to take on Deutsche Post's DHL and U.S. groups FedEx (FDX.N) and UPS (UPS.N).

Why Now?

For years TNT's management was criticised by shareholders for not allowing its express unit to achieve its full potential as a standalone business, a move that would also make for a more attractive takeover target for FedEX and UPS.

Tensions came to a head in December 2009 when Canadian asset manager Alberta Investment Management Corp, which had invested in TNT in a consortium with New York-based hedge fund Jana Partners, went public with its concerns.

Although the consortium held just a 5 percent stake, its arguments resonated with other shareholders. In April 2010, TNT management said it was considering a listing or partnerships for its mail unit.

It went one step further last August, saying it had decided to separate mail and express. In December, it announced the units would separate internally in January, with the split completed with a listing of express by the end of May.

How Will This Work?

TNT NV will retain PostNL and a 29.9 percent stake in TNT Express. TNT NV shareholders will receive one ordinary share in TNT Express for every share in TNT NV. The plan will be subject to a TNT shareholder vote in Amsterdam on May 25.

If greenlighted, trading in TNT Express shares will start on an as-if-and-when-issued basis on the Amsterdam stock exchange on May 26. Allotment, delivery and settlement of these shares will take place by May 31, the date of the legal demerger.

Why Keep a Tnt Express Stake?

Were TNT NV not to keep a stake in TNT Express, the mail company would be left with negative equity. A 100 percent demerger would have resulted in an estimated equity gap of around 900 million euros, the company said.

This would have been exacerbated by the possibility that TNT NV is hit by an additional writedown against equity in 2012 or 2013 of 900 million euros ($1.27 billion) as a result of changes in the accounting standard of employee benefits.

On the debt side, a 'BBB+' credit rating by Standard and Poor's for both the express and mail units was estimated to require 700-900 million euros capital.

TNT NV avoided a cash call by keeping a 29.9 percent stake in TNT Express to boost its equity valuation. Shareholders were spared a capital increase but, as a result, only received 70.1 percent rather than the entire share capital of TNT Express.

Will This Affect Control of Tnt Express?

TNT NV has signed up to an extensive "relationship agreement" that governs the handling of its 29.9 percent stake in TNT Express. The aim is to ensure TNT NV remains a financial investor in TNT Express rather than a strategic one.

If a public offer is made for TNT Express, TNT NV will be obliged to sell its stake if TNT Express management endorses it. Even if TNT Express management does not support the offer, TNT NV will have to sell if most of the other shareholders do.

There is an initial lock-up period of six-months in which TNT NV may not sell any of its stake without TNT Express approval. After this, if TNT NV sells more than a 10 percent stake, another 90-day lock-up kicks in for the remainder of its shares.

The agreement also states that TNT NV may not sell in one transaction, or a series of transactions, other than through an accelerated bookbuild offering, 15 percent or more of TNT Express shares to one party or a group of related parties.

TNT NV will also be obliged to sell or transfer as many TNT Express shares as required to stop it having to launch a mandatory offer for Express if such a requirement came about, for example by payment of stock dividend.

At TNT Express shareholder meetings, TNT NV has committed to abstaining from voting, as long as its stake is more than 10 percent, on a few key issues such as Express buying or selling interests equal to at least one-third of TNT Express's assets.

Reporting by Greg Roumeliotis; Editing by Dan Lalor $1 = 0.7095 euro

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