Today UPS and TNT Express jointly announced that they have reached an agreement by entering into a Merger Protocol on an all-cash public offer by UPS for all issued and outstanding ordinary shares of TNT Express at an offer price of € 9.5/sh.
PostNL, holding ~29.8% of the TNT Shares, has irrevocably undertaken to tender all TNT Express Shares held by it under the Offer subject to customary undertakings and conditions (the “Irrevocable Undertaking”). The Irrevocable Undertaking terminates upon termination of the Merger Protocol between UPS and TNT Express and PostNL may furthermore terminate the Irrevocable Undertaking in the event that the executive and supervisory boards of TNT Express revoke their recommendation of the Offer upon a bona fide third-party offer or making an offer which exceeds the offer price by at least 8% that is considered by the executive and supervisory boards of TNT Express to be substantially more beneficial to TNT Express and that is not matched by UPS.
What will happen with the cash proceeds?
If the Offer will be effected at the offer price of € 9.5/sh, it is expected that PostNL will receive a cash amount of approximately € 1,540m. PostNL will put an amount of € 700m of the proceeds of the sale of all its TNT Shares in an escrow account which will be used for the purpose of the reduction of its debt, in line with PostNL’s financial policy.
PostNL does not mention a possible pay-out of a cash dividend, which is no surprise since the discussions it currently has with the unions and the pension funds to limit its own pension contribution and cash top up payments. Furthermore, we believe PostNLwill post negative free cash flow to the tune of € 200-300m over the next two years, as a result of a restructuring and pension cash-outs.
Since we market-to-market the TNT Express stake at € 9.4/sh, the bid of € 9.5/sh does not impact our target price on PostNL. We stick to our Accumulate rating.