Friday, January 8, 2016

Express Freight Deal Between Two of the Big Four Players Gets Another Go Ahead

Acquisition of TNT by FedEx Wins European Commission Approval to Pass the Parcels
Shipping News Feature
US – EUROPE – WORLDWIDE – As we reported in November, European Commission (EC) approval was one of the last hurdles to jump in the €4.4 billion acquisition of the Dutch parcel carrier TNT Express by express freight group and US rival, FedEx Corporation. After its investigation, the European Commission has concluded that the deal does not raise any competition concerns and the way would seem to be clear for the two to become one. This decision comes around two years after the EC blocked a takeover attempt of TNT Express by UPS over concerns of severe constraints in the European small parcel market. Commissioner Margrethe Vestager, in charge of competition policy, commented:

"Many businesses and consumers rely heavily on affordable and reliable small package delivery services, in particular with the growth of e-commerce. Therefore, the Commission has thoroughly assessed the markets affected by this takeover. The conclusion is that European consumers will not be adversely affected by the transaction. We have therefore unconditionally approved the merger."

FedEx and TNT still need to obtain clearance of the transaction in the remaining jurisdictions, including Brazil and China, though the Taiwan Fair Trade Commission recently also gave its approval, reasoning that the merged entity would still face sufficient competition from both local and global players in the market making it really difficult to create a monopoly. FedEx and TNT Express say they are making timely progress and continue to anticipate that the deal will be closed in the first half of 2016. David Binks, Regional President Europe, FedEx Express, said:

“We are extremely pleased to receive the European Commission’s unconditional approval. We believe the combination of TNT Express and FedEx will provide significant value to the employees, customers and shareholders of both companies.”

FedEx and TNT are two out of four so-called 'integrators' currently operating in the small package delivery sector in Europe. Integrators are companies that control a comprehensive air and road small package delivery network and are capable of offering a broad portfolio of reliable delivery services. The other integrators are Europe based DHL, and US based UPS.

The EC opened an in-depth investigation in July 2015 following concerns that the proposed acquisition would substantially lessen competition in certain markets for international deliveries of small packages up to 31.5kg in the European Economic Area (EEA). The Commission was concerned that following the transaction, the merged entity would face insufficient competitive constraints from, DHL and UPS. A lack of sufficient competitive constraints could lead to higher prices for business customers and consumers.

These concerns have been dispelled by the Commission's in-depth investigation with the Commission concluding that the proposed concentration would not significantly impede effective competition in the EEA or any substantial part of it.

As regards international intra-EEA express delivery services, the Commission considers in particular that the merged entity's market position will be moderate and that, amongst integrators, FedEx and TNT are not particularly close competitors. The Commission's investigation showed that FedEx still exerts a weaker competitive constraint on the other integrators due to the lack of density and scale of its European networks.

The Commission carried out a price concentration analysis which is in line with the approach taken in UPS/TNT. The Commission also found that the transaction will give rise to verifiable, merger-specific efficiencies due to network cost savings which should benefit customers.

Similarly, as regards deliveries beyond the EEA, the Commission concluded that the market position of the merged entity on markets for deliveries to the world and to the major world trade lanes will be moderate and that amongst integrators, FedEx and TNT are again not particularly close competitors. This is due to TNT's primary focus on intra-European markets. The Commission also found that DHL and UPS will compete effectively with the merged entity after the transaction, and again that the takeover will allow the business to be run more efficiently due to network cost savings.

The EC also thoroughly investigated allegations that the transaction may cause particular harm to SMEs and after what it called 'a comprehensive market investigation', the Commission concluded that SMEs will not be more affected by the acquisition than other customers.

In 2013, the Commission prohibited the planned acquisition of TNT by UPS. At the time, the EC found that the takeover was likely to harm customers by causing price increases. This conclusion was amongst other things based on the fact that FedEx did not exert a significant competitive constraint in a number of national markets for intra-EEA express delivery services. In its investigation in the present case, the Commission says it replicated the same assessment as was undertaken in the UPS/TNT case both for intra-EEA express and for extra-EEA markets, thus ensuring full consistency with its previous practice.