FedEx Gears for Another Buy-TATEX - Analyst Blog

Date : 04/18/2012 @ 12:04PM
Source : Zacks
Stock : United Parcel Service, Inc. (UPS)
Quote : 105.61  0.53 (0.50%) @ 5:15PM
UPS share price Chart

FedEx Gears for Another Buy-TATEX - Analyst Blog

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.

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