Monday, August 11, 2008

UPDATE TNT - UPS Merger Rumor

Early Monday morning, Don Brutto, UPS President of International Business, put a kibosh on the story that it was negotiating to purchase TNT. In an interview with Reuters, he stated that a purchase of TNT would devalue UPS shares. He went on to state that UPS is looking for acquisitions in China with a goal of growing its headcount from 5,300 to 25,000 to reflect the demand that he says is there.

While Mr. Brutto's statement may accurately reflect UPS's current intentions, rumors of mergers between FedEx or UPS and TNT will continue to circulate given the synergies that a merger would produce both in Europe and Asia. What clearly is a stumbling block is determining a price that would be both attractive to stockholders of TNT and the acquiring firm. Any purchase of TNT would likely come at enterprise value multiple (EV/EBITDA) greater than that of the acquiring firm. In addition, European stock analysts have expressed opinions that the any acquiring price would be in excess of the $15 billion U.S. that was reported by the Sunday Telegraph.

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