TNT NV said on Thursday it will keep a 29.9 percent stake in its Express unit once it is spun off from its Mail division in a bid to avoid raising funds, cheering investors who had feared a cash call. The move, details of which were announced in a capital markets day presentation in London, means the firm is reduced to its former incarnation as a postal business.
It also makes the Express operations a more attractive take-over target for the likes of FedEx and UPS. TNT shares were up 5.6 percent at 19.9 euros at 1425 GMT after the demerger details and on relief it had not sought fresh funds from shareholders, while the benchmark Amsterdam index was up 0.29 percent.
A full split of operations would have resulted in an equity shortfall of around 900 million euros ($1.19 billion) while TNT could face an additional shortfall of around 900 million euros against equity in 2012 or 2013 due to accounting changes, TNT said. "We have an equity gap because Express is being separated and we could not list Mail with negative equity. One way to solve this would have been to raise capital but we think we have found a better route," TNT Chief Executive Peter Bakker told Reuters in an interview. TNT has a market capitalisation of 7 billion euros, or $9 billion, against $70 billion for UPS and FedEx's $28 billion.
TNT Express could be worth a little less than 10 billion euros to a rival, while mail was worth between 3 billion and 4 billion euros, depending whether it remained public or was bought by a private equity firm, ING analyst Axel Funhoff said. "There are only two possible buyers for Express: FedEx and UPS. For Mail it would be private equity," Funhoff said.
TNT NV said it will own the Mail operations and a 29.9 percent stake in Express. It will tender its remaining stake in Express in the case of a recommended bid and will only tender its stake in an unsolicited offer if a majority of shareholders accept it.
"The intent is to return the stake in Express (to the market) by 2015, it will be in steps. The better we perform, the sooner it will be," Bakker said. The TNT brand will go to Express and Mail will get a new name. Proceeds from the stake sale will be used to reduce TNT NV's debt, seen at some 1.2 billion euros, by 700-900 million euros. Any excess capital will be returned to shareholders, TNT said. The split into two listed companies was driven by limited synergies and diverging fortunes, with mail suffering from the rise of electronic communications and express benefiting from an expansion into emerging markets.
Mail will include postal operations in the Netherlands, Germany, Italy and the UK, and will expand its parcels and international business. Express will focus on fast high-end standard parcels and freight, and value-added services. Express, headed by French chief executive Marie-Christine Lombard, has a target to generate earnings before tax and interest (EBIT) of 900 million to 1 billion euros by 2015. Lombard is now managing director of the express unit. Group finance director Bernard Bot will be the unit's finance chief.
Mail targets stable cash EBIT of 300 million to 370 million. It will be headed by Chief Executive Harry Koorstra, already managing director of postal activities and in charge of a restructuring in which TNT is seeking 4,500 job cuts and which has resulted in strikes in the Netherlands. The internal separation will be completed on January 1 and the transaction will be proposed at next May's shareholders' meeting. There will be an interim dividend in March.
The group started off as the Dutch state-owned post and telecommunications services, privatised under the name KPN in 1994. In 1998, TPG postal activities were split from the KPN telecommunications side and renamed TNT in 2005. Avid U2 fan Bakker, who has been with TNT for 20 years and led it for the last 10, said he will step down once the demerger is completed, and has not planned his next move. "We have appointed adequate leaders for mail and express, so I've basically worked myself out of a job and I think that is what all CEOs should strive for," he said.