United Parcel Service (UPS), the world's largest package delivery and logistics company, today struck a deal to buy its smaller rival TNT Express NV, after raising its bid to $6.85 billion (€5.2 billion).

The potential acquisition would be UPS's largest in its 105-year history after it purchased Overnite Corp in 2005 for $1.2 billion.

Under the deal that has been approved by TNT's executive and supervisory boards and its biggest shareholder, PostNL, which owns a 29.8 per cent stake, UPS will pay €9.50 per share, a premium of nearly 54 per cent, up from an initial bid of €9 s per share last month.
 
On March 16, TNT Express, Europe's second-largest package-delivery company said that it was still in talks with UPS (See: UPS still in talks with TNT Express on $6.43-bn takeover) after turning down its €9 a share offer on 11 February.

Buying the Hoofddorp, Netherlands-based company, will give UPS a stronghold in Europe, China, Russia, Brazil and India, most of which have high growth potential. It would put UPS on par with Europe's market leader DHL- a unit of Germany's Deutsche Post AG.

TNT, whose name derives from the post-war Australian company Thomas Nationwide Transport, holds a 9.6-per cent market share in Europe, while UPS holds 7.7 per cent, taking the combined stake to 17.3 per cent and nearly on par with DHL, which holds a 17.6 per cent market share.

The acquisition will increase UPS's international sales to around 36 per cent of its total from 26 per cent to over $60 billion (€45 billion).

TNT has fully owned operations in 65 countries and delivers documents and parcels to over 200 countries. The company has a fleet of 26,000 trucks, 47 cargo planes and has a worldwide network of more than 2,400 depots and hubs. It recorded sales of over €7 billion in 2010.

UPS is in a dominant position in North America and CEO Scott Davis had earlier said that he would seek opportunities to grow in emerging markets.

Speculation increased that TNT would be a prime acquisition target after it spun-off its express unit and mail businesses PostNL last year.

Since the spin-off, TNT's market value has sunk amid profit warnings. It posted a net loss of €97 million for the first nine months of 2011 compared with a profit of €62 million a year earlier.

UPS CFO, Kurt Kuehn told German newspaper Boersen-Zeitung in May 2011 that his company was not interested in acquiring TNT's Express unit but was keen to buy small and medium-sized companies in Europe rather than go in for large acquisitions.

Having made small acquisitions in Europe last year, UPS last month completed the purchase of Brussels-based delivery firm Kiala in order to expand its presence in Belgium, France, the Netherlands, Spain and Luxembourg.

Armed with $4.13 billion in cash and near-cash items and capitalising on a strong dollar, the ongoing economic crisis in Europe, and TNT's low market value, UPS must have decided that it was the right time to launch a raid on TNT, say analysts.

UPS will finance the acquisition through a combination of $3 billion in available cash and new debt and expects the deal to close in the third quarter.

UPS's offer includes a provision to pay TNT €200 million if the deal fails to win regulatory approval. It also specifies TNT can only consider competing bids 8 per cent higher and must pay UPS €50 million if it breaks off the deal.