Dutch national mail service up for grabs

TNT, the Dutch national mail service turned international delivery company, is under pressure from investors and has announced plans to sell off its postal service while expanding its express delivery business.

In 2008, the British government put the state-owned and ailing Royal Mail postal service up for sale. Only two parties were interested: London private equity company CVC Capital Partners, and the Netherlands’ postal service TNT.

Now that TNT itself is hiving off its postal service – along with the interests it holds in assorted European competitors – there is only one obvious buyer.

For CVC, not the first time

CVC, a large and successful private equity company, has considerable experience with national postal services. Its past takeovers however, concerned national postal services that, unlike TNT, had yet to be privatised.

In 2005, CVC procured a minority interest in Post Denmark, the Danish postal service. In cooperation with its new Danish partners, CVC then acquired a minority interest in the Belgian postal service. Last year, CVC sold its share in Post Denmark back to the country's government, which has entered into a collaborative venture with the Swedes. In exchange, CVC received the Danish stock in the Belgian postal service that gave it enough shares to control that company.

"CVC got those shares at a bargain," said Jan Keuppens, a Flemish fund manager for Dutch asset management firm Robeco. "I doubt that TNT will be willing to sell its postal service at such a low price."

Robeco has 0.7 percent interest, worth more than 60 million euros, in TNT and as such is one of its 15 largest shareholders. In an interview with The Observer during the Royal Mail sale last year, Keuppens remarked that TNT's interests would be best served if the company focussed on its core business, rather than plunge headlong into uncertain acquisitions.

TNT soon discontinued takeover talks with the Brits. Strikes and political upheaval later halted the privatisation of Royal Mail, leaving TNT back where it started.

The Dutch mail

The Netherlands privatised its telecommunications business in 1994. Three years later, this company was split into telephone company KPN and mail service TNT. The company's new name was 'borrowed' from an Australian express delivery service acquired in 1996.

Like all (former) utility companies in the Netherlands, TNT now finds itself at a crossroads. Should it try to outgrow its limited home market through acquisitions? Or should it accept its competitors from surrounding, bigger countries have an inherent advantage, and allow a friendly takeover? KLM (Air France) , the Amsterdam stock exchange (Euronext), bus carrier Connexxion (Transdev) and the energy companies Nuon (Vattenfall) and Essent (RWE) all chose the latter option. Schiphol airport remains an autonomous outfit, but it holds a reciprocal interest in the Parisian airport. KPN, petrochemical company Gasunie and TenneT administrator of the Dutch power grid, chose the former, and are all expanding their business into Germany.

TNT has now chosen to do both. It will split its operations into two companies, one an express delivery service, the other a regular mail operation. The mail service will be sold and the express delivery will be allowed to grow.

TNT arrived at its new strategy shortly after the American activist investment fund Jana and the Canadian pension fund Aimco announced they were in possession of five percent of TNT's stock. "A number of activist shareholders are exerting pressure," said Keuppens of Robeco.

In 2006, investors successfully pressed TNT into selling off its logistic activities. Now investors are trying the same trick. Jana and Aimco's announcement has attracted new investors. Since December, TNT's stock price has outpaced the AEX, Amsterdam's blue chip stock market indicator, by 7 percent.

According to Keuppens, the sale of its postal service could make TNT as much as three to four billion euros. The price will depend on the costs of a scheduled reorganisation that will cost 11,000 jobs. A deal cut with the unions in February was crucial in the preparation of the company's break-up. Pension costs will also be a key factor: TNT's workforce is growing old fast.

Other candidates

Keuppens suggested that, on paper, the Deutsche Post would also be a possible candidate for a takeover of TNT's postal service. However, the German mail service currently has its own problems to deal with in both its postal service and express delivery branches. On the other hand, TNT's announcement of the sale of its mail branch could also encourage unsolicited offers on its fast-growing express delivery business.

Keuppens said he considered the postal service a perfect candidate for private equity takeover. TNT no longer requires any large investments, the postal service runs at a profit and generates a substantial cash flow which could be used to pay off the interest on the debts private equity parties generally incur to finance their purchases. That may not go over well with the unions or the workers' council however. Private equity financing has drawn a lot of criticism as of late. The takeover and subsequent break-up of ABN Amro in 2007, for example, was deemed a dismal failure.

Political interference with the sale of the former state business is unlikely. The deputy minister of economic affairs has made it clear that the nationality of the new owner of TNT's postal service would not be a matter of government consideration. The one thing that might prove an unexpected hurdle for foreign takeovers, is that political parties on the left and right are seeking to limit the power of private equity through fiscal measures.