FedEx Corporation To Face Tough Competition From UPS Despite TNT Acquisition

By Larry Darrell / www.supplychain247.com / May 11th, 2015

FedEx Corporation announced last month its intention to acquire TNT Express NV for $4.80 billion to expand its operations in Europe, a region where United Parcel Service, Inc. already operates.

Bidness Etc estimates that even with the TNT acquisition, FedEx may have a hard time keeping up with UPS.

The latter has already started increasing operations in the region by expanding its fleet. FedEx is currently awaiting approval for the deal from the regulatory authorities to proceed to the second step.

On the other hand, TNT reported operational losses in its first-quarter fiscal’15 earnings report, and incurred heavy transition charges during the period, leading to increased losses.

Analysts related to the industry believe the regulatory authorities will approve the acquisition request, as it will secure the future of current TNT operations. Along with this, TNT’s existing employees’ jobs will be secure since FedEx will use its financial muscle to sustain TNT’s losses and make profits post-acquisition.

United Parcel also placed a bid of 9.50 euros per share in fiscal’13 to acquire TNT. United Parcel’s request was however rejected by the European regulators, as the company failed to find suitable buyers of TNT in 17 countries.

After news of the FedEx-TNT acquisition, United Parcel has increased its investment in the European region. Last month, the company announced that it intends to invest $1.06 billion in the region and will use the Quantum Fuel system, which uses CNG to operate, in its truck fleet to reduce operational costs. UPS is also to buy 1,400 new trucks, most of which will be equipped with the Quantum Fuel system, and plans to build 15 new CNG stations to facilitate the fleet.

FedEx on the other hand said earlier this month that it is making timely progress in completing the acquisition deal. The company said that it might get approval from the European regulatory authorities by the end of next year. In order to get the approval, FedEx will also require approval from regulatory authorizes in Brazil, USA, and China.

FedEx stock is current trading at $173.35 against rival United Parcel’s stock price of $100.36. Analysts are estimating that FedEx’s stock price will increase to $193.16 by the next 12 months. On the other hand, United Parcel stock is said to increase to $109.05 during the same period.

It is clear from the analysts’ estimates that FedEx stock will experience a 11.42% growth as compared to United Parcel’s growth of 8.65%, over the next 12 months. The reason behind FedEx’s higher growth is obviously the TNT acquisition, after which the analysts’ estimate the company revenues will increase substantially.

Even after facing tough competition from UPS, FedEx remains confident it will supersede its competitors after the acquisition. Meanwhile, despite a lower stock price, United Parcel is generating almost double the operating income FedEx is. In the first quarter of fiscal’15, United Parcel reported a net income of $1 billion, against FedEx’s net income of $580 million. United Parcel’s strong financials give it the upper hand to keep its market share in the European region in the future by offering services at a lower rate compared to FedEx.

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