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TheStreet Open House

Why Couldn't Amazon Buy the Postal Service?

Stocks in this article: AMZNFDXUPSPBI

NEW YORK (TheStreet) -- Amazon.Com (AMZN) announced it will start delivering packages on Sunday, through the U.S. Postal Service.

The service starts this holiday season in New York and California. It's due to expand into other markets next year.

But wait, you say. Isn't the Postal Service killing Saturday delivery? They planned to do that starting last August. Congress stopped them. Yet now they're adding Sunday operations, for Amazon packages. Something doesn't add up.

What mostly doesn't add up is the U.S. Congress, which requires that the Postal Service pre-pay retiree health care costs. This is where most of its losses come from.

The Congress also refuses to let the Postal Service close unprofitable branches, and it spends a lot of time re-naming post offices for folks. They're also accused of selling out the nicer branches, through a company controlled by a U.S. Senator's spouse

They're micro-managing, in other words.

But what if the Postal Service were private? They do file a 10-Q report each quarter,  just like a real business. This is used, in part, to justify rate increases, which again can't be done unilaterally.

The National Academy of Public Administration suggested earlier this year that the postal service should be "partly privatized," keeping its delivery service but outsourcing the rest. That study was partly financed by Pitney-Bowes (PBI).

But what if Amazon.Com were to just, you know, buy the U.S. Postal Service?

At its current price Amazon.Com is worth $162 billion. United Parcel Service (UPS), which competes with the U.S. Postal Service in some areas, has a valuation of $43 billion on 2012 revenue of $54 billion, meaning the equity value is is 80% of sales.

Of course, UPS is profitable. That price also assumes a price-to-earnings ratio of 64, which means investors think profits are heading higher, or the stock is heading lower.

Its latest 10-K report the postal service reported revenue of $65 billion. Its mail volumes have been declining, from more than 210 million pieces in 2007 to last year's 160 million, and revenue has also been falling. From more than $75 billion to last year's figure.

The Postal Service may not be worth 80% of revenue, or $52 billion, but maybe with its valuable real estate such a deal could be done, as the American Enterprise Institute proposed back in 2011. 

Wouldn't Amazon be a logical buyer? They have the equity to do the deal. The government might like holding almost one-third of Amazon.com, at least for a time.

Yes, I know. All this is subject to approval by Congress. Something has to be done regarding the Postal Service's pension benefits, and that would be complicated. There would be enormous political opposition. It's probably not happening.

But what if, instead of competing with a federal agency, UPS and Federal Express  (FDX) were competing with Amazon.Com, which would presumably move all its business to the Postal Service, away from them. What could Amazon do for the Postal Service, in terms of infrastructure and operations, if it were free to act?

Crazier things have happened. Jeff Bezos buying the Washington Post is a pretty crazy thing, too. But what needs to happen in business, when you're looking at a failing business, is to see a way for stronger hands to take it over, fix it, and make money.

I don't doubt that Amazon.Com is a much stronger hand here than the federal government. Do you?


This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


The author has no stock in any of the companies mentioned here. But he does have a mailbox and belongs to Amazon Prime.

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