The United Parcel Service, Inc. (NYSE:UPS) proposed takeover of delivery group TNT Express (AMS:TNTE) has hit a likely fatal snag after the European Commission (EC) indicated that it will prohibit the proposed acquisition. This came after a review of “significant and tangible” remedies proposed by UPS in response to EC concerns regarding the acquisition. A prohibition by the EC of the acquisition would result in termination of the UPS offer.
Scott Davis, UPS Chairman and CEO said in the UPS announcement: “We are extremely disappointed with the EC’s position. We proposed significant and tangible remedies designed to address the EC’s concerns with the transaction. The combined company would have been transformative for the logistics industry, bringing meaningful benefits to consumers and customers around the world, while supporting growth in Europe in particular.”
The main concern for the EC regarding the acquisition was the risk of monopoly power as the merger between both companies would leave many European markets with a choice of only two integrators leaving customers with little or no control over market prices for the services offered by this genre of companies.
A decision regarding the merger is expected to be reached by the EC by February 5th 2013. The news release regarding this decision has already affected TNT Express shares causing them to drop by over 40% so far. UPS shares, on the other hand, are so far up on the news. On the brighter side for TNT, UPS must pay EUR 200 million to TNT Express as a termination fee. TNT’s chief executive said that the company would focus on executing its existing strategy and would have a strategy review in due course.
Though the collapse of the deal is a huge blow to UPS’s ambition to gain a stronger foothold in European market, UPS Chairman and CEO Scott Davis says that the company will continue to execute its growth strategy and the company’s financial strength will allow it to capture future opportunities.