FedEx Gears for Another Buy-TATEX - Analyst Blog
April 18 2012 - 12:04PM
Zacks
FedEx Corporation (FDX) is again in the lime
light with acquisition plans for another European company, TATEX
Express. This remarks the second big move by the company after its
recent announcement to acquire Polish company Opek Sp.z o.o.
Following the recent announcement of proposed acquisition of
Opek Sp.z o.o, this remains the second move by the company to enter
the European package delivery market.
French-based TATEX Express provides courier and express
transport services to industrial customers across Europe and
international markets.
Although the terms of the deal remain undisclosed, we expect
FedEx to gain from TATEX’s proven market position. TATEX’s annual
shipments come to 19 million parcels, accounting for 150 million
Euros in sales revenue.
Despite the looming economic crisis in the European market,
acquiring European companies seem to be the next big trend for
these U.S. package delivery giants. The growing flourishing export
and express package business remain key attraction for these
companies to step into the continent.
FedEx is the second in line to come up with strategic
acquisition plans by targeting smaller businesses. It follows the
proposed $6.77 billion ($5.16 billion euro) mega acquisition of
Dutch shipping company TNT Express by the largest package delivery
company, United Parcel Service (UPS).
Prior to TATEX’s proposed acquisition, FedEx had reported
acquisition plans for Opek Sp.z o.o. Upon completion of the
acquisition, it is estimated to garner annual revenue and shipments
of $70 million and 12.5 million, respectively.
We believe that the acquisition pattern of FedEx remains
impressive as these smaller acquisitions with their diversified
businesses will enable the company to spread its wings across a
variety of target markets. For Instance, TATEX is typically
involved in a B2B process. On the other hand, Opek has a business
of standard parcel delivery across Poland, mostly involving Ground
deliveries.
Further, these two companies have a different network of
operations. TATEX is focused on business across France and
international markets, while Opek’s business is typically
concentrated in Poland. We believe the acquisition of these small
companies, which have a strong foothold in local markets, will help
FedEx gain from the fragmented European package delivery
market.
In financial terms, overall exposure to risk also remains low
for FedEx, given the smaller size of these businesses. It also
entails lower investment compared to UPS’ TNT Express ambitious
acquisition plan.
Although TNT Express remains a promising bet for UPS with annual
revenues of more than €45 billion ($60 billion) but considering the
economic upheavals in the global market, uncertain business results
from even giant corporations cannot be completely ruled out.
Wise investors never put all their eggs in one basket. We
believe the same holds goods when it comes to mergers and
acquisitions. FedEx seems to follow this path diligently as is
evident in its recent takeover plans.
Overall, it remains difficult to quantify the near-term
financial gains that these companies (FedEx and UPS) will derive
out of their European expansion, where sovereign debt concerns
could significantly weigh on the economic recovery. However,
long-term prospects of these acquisitions look promising.
There are foreseeable potential opportunities not only in Europe
but in emerging markets like China, India, Japan and Brazil, as
well as other Asian markets for international growth.
Currently, FedEx retains a Zacks #3 Rank (short-term Hold
recommendation). We also reiterate our long-term Neutral rating on
the stock.
FEDEX CORP (FDX): Free Stock Analysis Report
UTD PARCEL SRVC (UPS): Free Stock Analysis Report
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