American courier delivery service company FedEx is going to buy Dutch delivery company TNT for 4.4 Billion Euros, expanding its European network. Two years ago UPS tried to buy TNT – but it was blocked by European regulators on competition grounds.
Analysts expect the FedEx deal to go through. Mike Ingram from BGC Partners says, “In terms of FedEx, it significantly increases the reach of their European footprint. It’s one of the reasons of course why Fedex is actually quite confident that unlike the UPS deal, this isn’t likely to be blocked by Brussels. So it seems as though it’s a win-win situation”.
FedEx is the latest company to take advantage of low borrowing costs – funding the TNT acquisition through debt.
And they’re not the only ones.
In the first quarter of this year, companies around the world announced M&A deals worth a total of $854.2 billion – up 21 per cent on the same time last year.
There have been fewer deals, but they’re worth more than last year.
It’s a trend that could be set to continue, according to Reuters BreakingViews columnist Quentin Webb.
“It seems likely that we’re going to see a lot more M&A. We’ve got very favourable conditions – it’s very cheap to borrow if you need to fund deals with debt. People seem to be rewarded by their shareholders for doing deals, and there are limited opportunities for organic growth, so people are looking at inorganic ways to grow.”, says Webb.
Currency fluctuations are also contributing.
“The weaker euro and flipside, the strong dollar, has meant European targets are more attractive to U.S. investors and I think FedEx/TNT is a very clear example of that.”, according to Mike.
The deal, which was unanimously recommended by TNT’s supervisory board, saw the Dutch company’s share price jump by more than 30 per cent. FedEx and TNT expect the deal to close next year.