United Parcel Service will pay 5.2 billion euros ($6.85 billion) for Dutch peer TNT Express in a deal that will make the world's largest package delivery company the market leader in Europe.
UPS will also get access to TNT's stronger networks in the fast-growing Asian and Latin American markets, increasing the U.S. company's global sales to over 45 billion euros and leaving it with 477,000 employees.
The deal has raised concerns that smaller companies will find it harder to compete. Germany's Deutsche Post DHL, the closest rival in Europe, said the European Commission should examine the proposed takeover thoroughly.
TNT said on Monday its executive and supervisory boards unanimously supported UPS' offer of 9.50 euros per share, a premium of nearly 54 percent, up from an initial 9 euros per share last month.
TNT's biggest shareholder PostNL, which owns 29.8 percent, also said it backed the offer, which UPS said it would finance through a combination of $3 billion in available cash and new debt.
It's a difficult day and a great day. Difficult because TNT is a proud company and it is difficult to agree to be acquired, said TNT Express head Marie-Christine Lombard.
It's a great day because the combination of the two companies...will be enhanced and really deliver the global leader that will be unequalled.
TNT Express shares rose 1.15 percent to 9.45 euros.
The offer ends years of speculation about the future of the Dutch delivery company, which was split from the Dutch mail company PostNL and listed last year.
With falling profit and a poor outlook for 2012, TNT's management had come under intense pressure from activist shareholders, including Jana Partners and Alberta Investment Management Corp., to seek a buyer.
UPS has long looked at TNT as a way to help it expand in Europe, especially Britain, France and Germany. It said it was confident the European antitrust watchdog would clear the offer without going into a prolonged investigation.
Analysts said the company might need to sell some assets to ensure the deal won the stamp of approval.
We expect some divestments will be needed for the competition clearances, DZ Bank analyst Robert Czerwensky said.
A spokesman for Germany's Deutsche Post DHL, said the acquisition would further strengthen the power of a significant player in a market with limited participants.
Trade unions said UPS had agreed to continue collective labor agreements and had not heard of any plans to make job cuts but analysts said the deal could impact thousands of employees.
With TNT about two times as large as UPS in Europe, this could affect more than 20,000 jobs at TNT in Europe alone, said Kelper Capital Markets analyst Andre Mulder.
Scott Davis, UPS chief executive, said it would take four years to integrate TNT, including replacing the Dutch company's trademark orange logo with the brown of UPS.
The businesses have overlap, but Davis said it was way too early to talk about redundancies.
FOREIGN SALES BOOST
The acquisition will accelerate the UPS strategy of having over half of sales outside the United States. It will increase foreign revenue from 26 percent to 36 percent of the total.
The deal will bring annual cost synergies of approximately 400 to 550 million euros per year in four years, UPS said. It will first spend a pre-tax, 1.3 billion euros on implementation costs to achieve those synergies, it said.
UPS said that the $6.77 billion acquisition will be financed with an equal mix of cash and banking borrowings and would enhance its earnings per share in the first year after the deal.
If a third party makes a binding counter offer exceeding the UPS bid by eight percent, TNT or UPS can terminate the transaction, the companies said in a statement. That leaves the door open for another rival, such as FedEx, to bid, but analysts have said that is unlikely.
A person familiar with UPS said a TNT deal would not have benefited FedEx in the same way as it helped UPS because FedEx's smaller European presence would have brought fewer synergies.
About two-thirds of TNT's revenue is from European customers, but it also has been steadily growing in China, India and Brazil, where it struggled to integrate its acquisitions.
UPS is in the midst of a $200 million expansion of its Cologne hub, and has recently grown through acquisitions but the TNT deal is the largest by far.
Earlier in February, UPS announced the purchase of Brussels-based Kiala in a bid to boost European e-commerce capabilities. Other European purchases include the 2005 acquisition of parcel carrier Lynx Express Ltd in Britain and messenger service Stolica in Poland.
Europe is UPS's largest market outside the United States, accounting for $6 billion or half of the company's annual international revenue. Total revenue for UPS last year was $53 billion, while TNT's was around $7 billion.
UPS carries about $11 billion in debt on its balance sheet and could tap credit lines for $12 billion in additional debt. The company has $4.1 billion in cash and $1.3 billion in marketable securities.
($1 = 0.7592 euros)
(Additional reporting by Matthias Inverardi and Roberta Cowan; editing by Anna Willard)