UPS is in line to sue EU over failed attempt to acquire TNT Express following court ruling

Earlier this week, Atlanta-based transportation and logistics bellwether UPS received some potentially good news when the European Court of Justice said that a previous decision by anti-trust regulators in 2013 to prevent UPS’s intended acquisition of TNT Express NV, a provider of mail and courier services and the fourth largest global parcel operator, is to be annulled, according to media reports.

With the court’s actions, reports noted that UPS might be in line for a $2 billion damages claim. Reuters reported that the European Court of Justice said the ruling followed a procedural error by the European Commission in its veto, which “paved the way for FedEx to acquire TNT…a deal it approved.” The report added that UPS had been seeking $1.98 billion from the European Commission.

“UPS is pleased that the European Court of Justice has agreed that UPS was not given a fair hearing,” UPS spokesman Gregg Svingen told LM. “The judgment in UPS’s favor makes a number of points preserving a competitive environment in Europe by clarifying the procedure and relevant criteria for merger approval. UPS has operated in Europe for over 40 consecutive years and continues its program of investing into its integrated global network, in which Europe plays a key role.”

Despite various attempts to acquire TNT, FedEx, UPS’s chief competitor, eventually won that fight, officially bringing TNT into the fold for $4.8 billion in May 2016.

As previously reported by LM, getting to that point, though, was replete with many chapters, though. In 2012, UPS had a deal in place to acquire TNT for $6.8 billion, which would have made UPS the largest logistics services provider in Europe ahead of DHL, but the deal was squashed, following a formal decision from the European Commission, the executive body of the European Union, which prohibited the acquisition. Many of the EC’s concerns over the deal were due to the competitive parcel landscape in Europe. And FedEx being a distant fourth in Europe in terms of market share made attempts to stop the sale difficult. TNT had been looking for a buyer of its express business since 2010, when it split out its mail division. And UPS subsequently had to hand over $267 million Euro (roughly $344 million in U.S. dollars), because of prohibition by the European Commission and the Offer Condition relating to the EU Competition Clearance not being fulfilled and UPS paying TNT the and withdrawing the offer.

But in 2017, it turned out that the European Union’s decision changed, when it led to FedEx eventually acquiring TNT.

The reason for this was because after losing its bid for TNT, UPS challenged the EU’s decision at the general court, which resulted in the annulment of the EU decision, due to what it called a procedural irregularity.

Jerry Hempstead, president of Hempstead Consulting, explained that when FedEx acquired TNT, there were hardly any anti-competitive grounds for the European Union to prevent the deal from happening, adding that when FedEx completed the purchase of TNT in May 2016, it was viewed as a relative bargain compared to what UPS was willing to pay, with the caveat that TNT was struggling in the period between the UPS offer and the sale to FedEx, which made it less valuable.

Fast-forwarding nearly three years later, Hempstead said that UPS dodged a bullet in not eventually acquiring TNT, as FedEx dealt with the aftereffects of the NotPetya cyber attack at TNT Express, which halted the TNT software platform in June 2017.

“That was catastrophic and prevented shipments in the TNT network from being cleared by Customs at their destinations and prevented shippers from tendering new shipments,” said Hempstead. “Transactions in the networked were significantly backed up. There was stuff everywhere and volume in the system had to be worked through manually. In many cases they had to contact the shipper to reconstruct the documentation so that the shipment could clear.
Shippers could not get their shipments delivered and recipients could not get their hands on material coming in to run their business.”

This lead to a decision, he said, in which shippers were faced with holding onto their TNT shipments or cutting a deal with UPS and DHL. 

“Meanwhile UPS and DHL sales were climbing through the roof as they were gifted the business that they had originally wanted to purchase and integrate,” he added. “They got the TNT business gifted to them. TNT Shippers had no choice but to find a working carrier to deliver their orders, and sadly the IT glitch at TNT dragged on for weeks. Once FedEx had come up with a solution they had lost much of the TNT business and/or patience of the TNT customer base.”

The parcel consultant went on to say that UPS was essentially not treated fairly in its original attempt to buy TNT, stating that the EU was not completely transparent on why they nixed the deal.

“One could possibly infer that DHL May have had their finger on the scale,” he said. “In the end, while UPS was fighting with the E.U., TNT agreed to be acquired by FedEx and TNT was no longer in play. The reality is that when looking at the European transport market, it’s far greater than just DHL, TNT,UPS and FedEx. There are thousands of firms that handle big and small shipments and the combination of TNT with anyone would not have given anyone greater than 50% share of all the business. So UPS has won an initial round here, and the court ruled that UPS can sue for the damages to them, which could approach $2 billion. That’s what many estimate is the lost value to UPS by being blocked by the commission from buying TNT. One could argue that if the UPS deal had gone through that the business would have been already integrated and transitioned to UPS before the Notpetya virus manifested itself, and/or the UPS IT guys would perhaps have uncovered it and eliminated it before it shut everything down. The big obvious problem here is that you have a big American firm like UPS trying to get justice in Europe by suing the E.U. commission for money they think they would have made had they fairly been allowed to purchase TNT when they struck the original deal. UPS will not find a lot of sympathy at the E.U. It will be fun to watch this case progress and to read the testimony and perhaps a glimpse as to why the E.U. commission nixed the deal in the first place. This story isn’t dead yet.”