* TNT Express shares down 42 pct, PostNL down 36 pct
* EU told firms market position would be too strong
* Efforts to hive off assets failed to find buyers
* DHL rules out bid, FedEx in background
By Sara Webb and Anthony Deutsch
AMSTERDAM, Jan 14 UPS is dropping its $7
billion bid for Dutch delivery firm TNT Express after
European anti-trust regulators said they would veto it, leaving
TNT's future in doubt and almost halving the value of its
Shares in U.S.-based United Parcel Service Inc
gained 1.2 percent on Monday after the world leader in the
sector said in a statement that European Union officials told it
the EU executive Commission would veto the deal. An EU source
confirmed that and said the decision could be made public as
early as next week.
UPS wanted to buy the smaller firm for its European network
and assets in fast-growing Asia and Latin America. While the
collapse of the 5.2 billion euro takeover means a rethink at
UPS, the impact is far greater on TNT, which is struggling in a
weak European market and lacks a strategy for developing on its
own after nearly a year of negotiations on the merger.
Investors wiped nearly 2 billion euros off its value as the
share price dived 42 percent to 4.750 euros.
The two companies offered to sell some operations to ease
concerns about competition in Europe, where rivals FedEx Corp
and DHL had lobbied the Commission to block the deal, a
banking source said. But UPS and TNT failed to find buyers and
planned asset sales were not enough to satisfy EU officials.
"It's more than a minor setback" for UPS, said Kurt Hoefer,
research analyst at portfolio manager Golub Group in San Mateo,
California, which holds UPS shares. "It would have been a nice
addition to have TNT's domestic routes as part of the UPS
Having been blocked in its attempt at a large takeover, UPS
will likely return to its prior strategy of pursuing strings of
small deals on the continent, Hoefer said, adding, "I don't
think they have any alternative but to grow it organically."
UPS will pay TNT a termination fee of 200 million euros.
Shares in U.S.-based FedEx were slightly firmer, up 0.3
percent, while those of DHL's German parent Deutsche Post
were down by a similar margin. Deutsche Post's
finance chief told Reuters the company had no interest in buying
TNT nor any other express delivery business.
TNT faces an uncertain future. It has had to cut capacity in
Europe in response to falling demand, was hit by restructuring
problems in Brazil and is considered a minor player in China.
Its chief executive quit soon after UPS made its offer in March.
TNT had been partially split from Dutch postal operator
PostNL in May 2011 in an attempt to profit from
express operations as traditional mail business declines. But
its weak performance quickly prompted activist shareholders to
push for a management shake-up or an outright sale.
"Now TNT will have to continue alone," said Philip Scholte,
an analyst at Rabobank. "TNT's management will have to roll up
their sleeves, come up with a plan and get down to work."
TNT, which reports annual results on Feb. 18, said it would
update investors on its strategy in due course. Shares in
PostNL, its biggest shareholder, plunged by over a third.
A new merger proposal for TNT seems unlikely, at least in
the short term. Its closest European rival, DHL, is bigger in
Europe and would be unlikely to get EU competition approval.
"FedEx is the only other option," said analyst Maarten
Bakker at ABN Amro. "And they are not going to be in any hurry
because there is simply no rival bid."
Others suggested TNT would be a poor fit with FedEx.
"They seem to be committed to faster-growing regions, and
adding a thoroughly unionized European Union entity to the FedEx
mix would certainly be a shock to that culture," said
Morningstar analyst Keith Schoonmaker, who noted that few FedEx
employees are unionized.
A FedEx spokesman declined to comment on whether the company
would pursue a bid for TNT.
Any bid from an existing operator will face questions from
an EU Commission concerned about prices being pushed up and wary
of mergers that shrink any market to three players from four, as
would have happened had UPS faced only FedEx and DHL.
Competition commissioner Joaquin Almunia said last week that
UPS would need to create an equivalent rival to TNT before he
would approve the deal. In the end, the U.S. firm seemed not to
have done enough to help France's DPD expand its challenge.
UPS had offered to sell warehouses and customer bases in 15
countries, mainly in eastern Europe, and discussed divesting
other assets, including some to FedEx, according to media
reports. But FedEx and DPD did not take up offers of assets.
"FedEx's heavy lobbying against the deal didn't help either,
and more generally the lack of bidders was a problem," said a
source familiar with the deal. "FedEx didn't offer to buy any of
the assets on the block. La Poste-DPD were very close to buying
the international express unit but it didn't happen in the end."
UPS CEO Scott Davis voiced his disappointment: "We proposed
significant and tangible remedies designed to address the EC's
concerns with the transaction," he said in a statement.
The European Commission, however, was left unimpressed.
In other anti-trust rulings recently, Almunia vetoed a $7.4
billion financial exchange merger between NYSE Euronext and
Deutsche Boerse in February, saying the deal would have given
the new company a lock on European futures trading.
This month Hutchison Whampoa overcame his concerns
that its purchase of Orange Austria would reduce competition in
the Austrian telecoms market only by agreeing to help other
companies break into the market.
Universal Music Group staved off an EU veto on its
$1.9-billion plan to buy EMI's recorded music unit in September
only after promising to sell some of the British firm's most
valuable labels, to get its market share below 40 percent.