UPS could be bidding against itself for TNT

TNT shareholders are waiting for a much bigger buyout package. There’s good reason for the Dutch parcel service to expect UPS, its American suitor, to sweeten its bid of 4.9 billion euros, or $6.3 billion, given the huge synergies that would probably result from the union. But with rivals FedEx and DHL inhibited in varying ways, TNT investors may not get the bidding war they’d like.

UPS hasn’t unwrapped the expected cost savings from acquiring TNT. Stripping out expenses would be relatively easy, though, given UPS’ formidable presence in Europe. And the opening offer suggests it would retain a large slug of these benefits for itself.

But for now at least, UPS is bidding against itself - and it could stay that way. FedEx has a negligible 3 percent market share in European delivery, a third of what UPS claims, according to HSBC. That would make it harder for FedEx to extract synergies of a similar magnitude. As a result, Barclays estimates FedEx savings from a tie-up with TNT at just $240 million. Taxed and capitalized, this amounts to about $1.8 billion. UPS is already offering TNT a premium of $1.9 billion, meaning FedEx shareholders wouldn’t necessarily cheer a competing offer.

What’s more, FedEx has a weaker balance sheet. UPS may have been deliberately taking advantage of this fact with its all-cash offer. Matching the 9 euros a share bid in cash would take FedEx’s net debt to three times operating cash flow including leases, according to HSBC, against a multiple of just two times for UPS.

Deutsche Post DHL, meanwhile, faces a different kind of obstacle. Acquiring TNT would create a titan with a 33 percent market share in Europe - almost four times larger than nearest rival UPS. Though there could be divestiture workarounds, antitrust authorities would quickly descend on any such proposal.

A rival bid can’t be ruled out, of course. FedEx, for example, may calculate that the risk of being totally outgunned in Europe warrants paying over the odds. Still, TNT investors are expecting at least 9 percent more right now. As it stands, it’s not obvious their shipment will come in.