UPS Cancels $6.9B TNT Express Order

NEW YORK ( TheStreet) -- United Parcel Service ( UPS) is withdrawing its planned $6.9 billion acquisition of TNT Express after European union antitrust officials said they would oppose the deal.

The deal's failure marks the second time in roughly a year that a U.S. corporate giant has been held up on merger efforts by EU lawmakers. In February 2012, antitrust officials in the European Union nixed a proposed $9.5 billion merger between stock exchange operators NYSE Euronext ( NYX) and Deutsche Boerse, a decision the German stock exchange called a 'black day' for Europe.

In December, NYSE Euronext announced a merger with IntercontinentalExchange ( ICE), in a deal that will also face a EU antitrust review.

According to Monday statements from UPS and TNT Express, after months of trying to negotiate asset sales and concessions that might alleviate antitrust concerns, the mail giants said they had made little progress. With a February deadline with the E.U. looming to reach acceptable terms for a deal, the merger fell apart.

"We are extremely disappointed with the European Commission's position," Scott Davis, UPS chief executive., said in a statement. "We proposed significant and tangible remedies designed to address the European Commission's concerns with the transaction."

As part of the deal's failure, UPS will pay TNT Express a 200 million euro termination fee. Meanwhile, the failed acquisition tempers the U.S. mail and shipping giant's international expansion efforts.

Still, analysts see a silver lining from the termination of the proposed merger. Deutsche Bank analyst Justin Yagerman wrote in a Monday research note that UPS may now be able to return capital to shareholders and cut smaller sized acquisitions.

"We are assuming that UPS uses an incremental $3 billion to repurchase shares and we would not be surprised if the company also uses capital to fund tuck-in acquisitions," wrote Yagerman, in a research report that raised UPS's price target to $92 from $83 a share.

Shares in Atlanta-based UPS rose nearly 2% to $79.247 in Monday trading.

Had the deal succeeded, UPS might have become the largest shipper in Europe, in a merger that could have grown its international mail delivery revenue and created significant cost savings.

When the long-expected $6.9 billion deal was announced, 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."

"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 March. 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.

"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 wrote, in the client note.

With TNT Express, UPS would also have grown 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.

TNT Express's failed takeover undercuts the work of some activist hedge funds, who played a role in the shipping unit's split from Dutch Dutch mail giant TNT in May 2011.

Jana Partners, an activist fund, pushed strongly for TNT Express's eventual sale, however, in the wake of the cancelled merger with UPS, the company's shares are nearly 40% lower.

Benefits of a TNT Express acquisition wouldn't have been as present for UPS's main U.S. rival FedEx Corporation ( FDX), according to Sterne Agee analyst Jeff Kauffman.

For more on UPS shares see The #1 recession proof portfolio that will make you richer and the most bought industrial stocks among investment funds.

UPS was advised by UBS ( UBS), Morgan Stanley ( MS) and Bank of America Merrill Lynch ( BAC). Goldman Sachs ( GS) and Lazard ( LAZ) gave TNT Express advice on its sale.

Written by Antoine Gara in New York.

More from Mergers and Acquisitions

10 Questions for PayPal Ahead of Its Big Investor Day

10 Questions for PayPal Ahead of Its Big Investor Day

Congress May Have Just Set in Motion a Huge Banking Industry Merger Wave

Congress May Have Just Set in Motion a Huge Banking Industry Merger Wave

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Square Shares Shake Off Concerns About PayPal's Deal for iZettle

Square Shares Shake Off Concerns About PayPal's Deal for iZettle