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NEW YORK (
United Parcel Service(UPS - Get Report) is set to see a long-term earnings boost after making an international mail delivery push with a $6.8 billion all-cash acquisition of Dutch package shipper
TNT Express, according to industry analysts.
After upping a previous failed bid for TNT Express, UPS may become the largest shipper in Europe as it grows international mail delivery revenue and finds cost savings that make more upbeat about the earnings of the largest public mail delivery and logistics company in the U.S.
On news of the deal, JPMorgan analyst Thomas R. Wadewitz raised his UPS price target to $92 a share from $88 and moved his rating of the stock from "neutral" to "overweight" on an expected rise operating profits that will lift UPS's long-term earnings per share.
"We expect significant
earnings per share
accretion in 2013 and 2014 from the TNT Express deal and we also view it as a strategic positive in terms of boosting UPS's global footprint," wrote Wadewitz in a Monday note. He forecasts that the deal will add 48 cents to UPS's 2013 and 2014 earnings per share, pushing this year's total to $5.75. The acquisition is also expected to drive $400 million in cost savings.
"In our view, the deal is a significant strategic positive for UPS because it will vault UPS from a #3 position in most European markets to #1 or #2 positions. We would expect the deal to strengthen UPS's global small package network and also significantly broaden its base of European customers." Wadewitz adds that the deal will strengthen UPS's small package network and will help thje company further benefit from an improving U.S. economy.
If the deal were to close as is expected by management in 2012, it would be UPS's largest ever deal, significantly eclipsing a $1.2 billion acquisition of speed delivery service
Overnite Corporation in 2005. With TNT Express, UPS would also grow its revenue to $60 billion from $53 billion, while pushing international earnings to 36% of overall revenue from present levels of 26%, according to a press release.
"With this combination, both U.P.S. and TNT Express will significantly enhance their ability to serve our combined customers' complex global logistics needs," said UPS chief executive Scott Davis in a statement. "The additional capabilities and broadened global footprint will support the growth and globalization of our customers' businesses."
In Monday trading UPS shares rose over 3% to $81.03, while FedEx shares rose under 1% to $94.99. Year-to-date, FedEx shares have outpaced UPS, posting a near 14% gain to UPS's 9% 2012 rise. Those 2012 gains have helped UPS and FedEx shares to post positive stock returns in the last 12 months.
To get a deal done, UPS raised its offer price for TNT Express to 9.50 euros a share from 9 euros, which was rejected by TNT's board in February. Expectations of a TNT Express deal lingered for almost a year after the unit was spun from the Dutch mail giant
TNT last May.
Since that spinoff, TNT Express shares suffered from weak Latin American and Asian earnings that pushed the company to a loss of 270 million euros in 2011. Some TNT Express investors like activist investment fund
Jana Partners saw the company's struggles as a sign that drastic change like a sale was needed. In December, the fund nominated two hostile directors to TNT Express's board in as proxy campaign to push for a sale.
TNT Express shares have rallied nearly 50% since the company acknowledged that it had been in deal talks with UPS in February.