FedEx Corp’s $US4.8 billion bid Tuesday for TNT Express took the world’s last large potential package delivery acquisition target off the table, marking a victory in FedEx’s battle to gain market share from rival United Parcel Service Inc.
If FedEx wins regulatory approval for the proposed acquisition, it would pull into the No. 2 spot among package delivery services in Europe with a 17 per cent market share. That would put it ahead of UPS in Europe, but leave Deutsche Post’s DHL with the lead at 19 per cent of the market.
For FedEx, this is a case where being No. 2 could be an advantage. In 2013, European regulators blocked a $US6.9 billion bid from Atlanta-based UPS, the world’s largest package delivery company, for TNT on grounds that the combined companies would have more than 30 per cent of the European market.
FedEx has a better shot at getting regulatory approval, analysts say, in part because TNT has lost share since the UPS bid.
“It looks like FedEx came in and got something that UPS couldn’t,” said John Haber, chief executive of Spend Management Experts, which helps clients reduce supply chain spending. “It looks like FedEx paid a lot less and it puts them in a sweet position.”
UPS has said it will not renew its bid for TNT and last year said it would invest $US1 billion over four years in expansion projects to grow its business organically.
FedEx has had a good run recently against UPS. UPS had a second consecutive poor peak season in 2014, as it overspent to compensate for being stuck with a glut of packages on Christmas Eve 2013. FedEx experienced no such problems.
“FedEx is currently better positioned and is doing a better job of executing,” said Jim Corridore, an equity research director at S&P Capital IQ.
If regulators give FedEx’s TNT offer the nod, it would leave no other major package delivery firm as targets for DHL, UPS or FedEx, which have global market shares of 41 per cent, 25 per cent and up to 22 per cent, including TNT, respectively.
“There’s really nothing juicy left out there to buy,” said Helane Becker, a Cowen & Co analyst.
Morningstar analyst Keith Schoonmaker said acquisitions by the two package delivery firms from now on may focus on growing other parts of their business, such as contract logistics, logistics or freight forwarding.
“Unless a large package business develops independently in Asia, all that’s left out there are small, regional players,” Schoonmaker said.
The barriers to entry for a major new package delivery company are high. A potential rival to the three global leaders would need to own an airline, a prohibitive obstacle for most firms.
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