Written on February 21, 2012
TNT Express NV sidestepped questions Monday about a hostile UPS takeover bid, announcing instead an abrupt switch in strategy to focus on its European operations after posting a large fourth-quarter loss partly due to problems at its Brazilian arm.
CEO Marie-Christine Lombard deflected questions about the issue most on the minds of investors and employees: a hostile offer of euro9 ($11.87) per share that United Parcel Service made for TNT after the close of European trading on Friday.
TNT rejected the bid, which values the Hoofddorp, Netherlands-based company at $6.43 billion, but says it is in talks with UPS.
Lombard wouldn’t say whether the company believes UPS may sweeten the offer or whether TNT has been approached by other potential buyers such as FedEx or private equity firms.
But investors believe a higher offer is likely, as shares soared more than 60 percent Monday to close at euro10.18. They dropped to euro9.929 in early trading Tuesday, still well above the UPS bid.
TNT reported a loss of euro173 million ($229 million) for the fourth quarter, including a euro104 million charge on its Brazilian arm and another euro45 million to write down the value of its airplane fleet. The company had profit of euro4 million in the same period a year ago. Revenues rose 2.8 percent to euro1.85 billion ($2.5 billion).
Lombard said TNT believes it can grow at least twice as fast as the European economy “in the medium term” _ but noted TNT has had a “difficult start” in the first quarter of 2012.
Lombard said the company is looking for “strategic partnerships” for its businesses in Brazil and China, which usually means it wants to sell them in part or whole payday loan lenders.
But Lombard said there were other possibilities, including joint ventures, as long as they reduce the company’s “financial exposure.” Asked whether the company’s Brazilian operations would return to profit in the second half of 2012, she laughed and said “that’s the plan.”
“Europe provides us with future further opportunities to grow,” she said, citing TNT’s market share and the “fragmented” nature of the market. TNT is the second largest express delivery company in Europe behind DHL.
She said the company sees opportunities in delivering health care products that have to be maintained at a steady temperature.
TNT reported full year operating income of euro356 million ($472.3 million) in Europe in 2011, down 4 percent from euro370 million in 2010, and full year operating losses in all other regions.
“Today’s press release underlines that corporate value outside Europe is meager at best,” said analyst Geert Steens of SNS Securities in a scathing note on the earnings. He said just a year ago, Brazil and China were central to the company’s growth strategy.
His advice to investors is to “Hold, and hope” a takeover goes through.