Spin off meets Merger Arbitrage: TNT Express (ISIN NL0009739424)

TNT Express is the express parcel service spun off from PostNL in 2011. I have looked at the stock a couple of times as a spin off situation.

In February 2012, UPS announced it’s bid to buy TNT Express. In march they increased the bid to finally 9.50 EUR.

In the meantime it looks like that there is a lot of unexpected resistence from the European monopoly regulator.

The share now trades below 7 EUR, interestingly this is only a little higher than the “undisturbed” price in January/February which was between 6.10 -6.50 EUR. Since then, for instance Deutsche Post for gained some 15% from February, Österreichische Post even some 20%:

Since February, the correlation to the overall market is very very low, almost close to zero.

So basically, the market now does not believe at all in the takeover, as TNT Express is trading very close (or even below) to its “undisturbed” price. In the meantime they made some progress with regard to the merger, among others they sold their Airline which was one of the preconditions to get the deal approved.

All in all I am somehow “tempted” by this. It is a Spin-off situation which in itself is interesting. Additionally, the “option” that the UPS deal closes is only partially priced in. If the deal falls through, I think similar to Rhoen, there might be other groups interested in the business.

The risk is of course that some (very slow) hedge funds might sell if the deal finally falls thorugh but I assume that the 2.55 EUR difference to the bid price implies that most of the “Clever” merger arbitrage players are already out.

As a first summary, I will watch this and maybe start a 1% position in the next few days for my “special situation” bucket.

3 comments

  • Clearly the market does not expect take-over (expectation below 50%) and/or lower take-over price.
    If I remember correctly recent figures were below expectations for Postnl. This offers an opportunity, but I never do special situations if I don’t believe the asset undervalued whatever the outcome. Good luck!

  • Played this arbitrage over the last couple of months, but in a slightly different way: PostNL, the former 100% owner of TNT, still owns 25% of TNT.

    PostNL’s current value is 1bn €, the value of its TNT stake if the deal goes through is 1.25bn. The sale would be tax free (actually it would generate a tax loss carried forward). Obviously, PostNL is not a very attractive business, but is it worth -250 mio? If one could have shorted TNT at 9.30€ this year and bought PostNL, there would have been a basically risk free return.

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