UPS regroups after TNT Express acquisition called off

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UPS is remaining optimistic that it can pursue new growth opportunities in Europe despite the European Commission blocking its proposed acquisition of Dutch carrier TNT Express, executives tell investors today in an earnings call.

"It would be an understatement to say we are disappointed by the decision by the European Commission to block the acquisition," says UPS chief executive Scott Davis. "UPS essentially put all hands on deck to get this deal done over the last year."

UPS officially withdrew its €5.16 billion ($7.01 billion) offer for TNT Express on 30 January after the European Commission blocked the transaction, following nearly a year of negotiations since putting in an initial proposal for TNT Express in February 2012.

The carrier offered several remedies to the commission, such as selling TNT Express' subsidiaries, before stepping away from the deal.

"The biggest impact of our TNT deal was that we put a lot of our initiatives on hold," says Kurt Kuehn, CFO at UPS.

Davis says the carrier is moving on, with both organic and acquisition-based growth opportunities on the up for consideration. To do that, UPS is now shifting the resources that have been tied up in the TNT Express transaction to focus on other opportunities in the region. But Davis says these potential opportunities on the horizon likely would not be as large as the proposed acquisition, which would have been the largest UPS had ever seen.

A recent cargo report from IATA shows that cargo growth in European markets has been slow, with consumer confidence falling in the fourth quarter of 2012. But Davis says UPS sees Europe stabilising this year with global economic growth being slow for 2013.

"Clearly we're starting 2013 in Europe in a more stable situation than last year," he says, noting that air cargo forecasts in the Germany and UK are improved, but the Netherlands and Poland are worse.

Daniel Brutto, president of UPS International, says the company still sees opportunities to expand in Europe, however the TNT Express acquisition would have been a way for the logistics company to move into the market faster.

"Certainly there is opportunity for us to expand in certain areas of Europe and Eastern Europe," says Brutto. He cites the healthcare field as a specific opportunity for growth.

UPS saw European exports improve due to a trend of customers switching to non-premium services and says it will pursue growth in Europe's small package market. The carrier recorded a 5.5% increase in average daily export volume in its international segment, driven by solid demand in Asia and Europe.

Now that the TNT Express deal has been called off, UPS plans to up its expected share repurchases from $1.5 billion to $4 billion this year, says Kuehn.

UPS has a European headquarters in Brussels, Belgium and operates out of its regional hub in Cologne/Bonn Airport in Germany.