Assignment on FedEx Acquisition of TNT Express

Table of Contents

1.         Introduction  3

2.         FedEx & TNT Express Overview   3

3.         Description of Acquisition  4

3.1.      Reason behind Acquisition  4

3.2.      Price Agreed Upon  4

3.3.      When & How Merger Took Place  5

4.         Benefits Gained From Merger 5

4.1.      Financial Gains  5

4.1.1.   Profitability  5

4.1.2.   Liquidity  6

4.1.3.   Efficiency  7

4.1.4.   Financial Leverage  8

4.2.      Reduction in Cost 9

4.3.      Increase in Market Share  9

5.         Description of accounting Methods  9

5.1.      Cost Method  10

5.2.      Equity Method  10

5.3.      Consolidation Method  10

6.         Financial statements  11

6.1.      FedEx Income Statement 11

6.2.      FedEx Balance Sheet 12

6.3.      TNT Express Income Statement 13

6.4.      TNT Express Balance Sheet 13

7.         Conclusion  13

8.         References  13

FedEx Acquisition of TNT Express

Introduction of FedEx Acquisition of TNT Express

The goal of this report is to provide deep insights regarding the FedEx acquisition of TNT express. The report has discussed the reasons behind the acquisition and how the acquisition has taken place. The report has provided detail description of the acquisition procedure and discussed the benefits of the acquisition for the FedEx Corporation. Apart from the benefits the report has also discussed the accounting method which is utilized for reporting the acquisition of the TNT express. At the end of the report, the financial statements of both the organization are presented to provide detail analysis of the difference which arises in the statements after the acquisition process.

FedEx & TNT Express Overview

FedEx is an American corporation whose headquarter is located in the city of Memphis United States. The organization provides Courier deliver services across the globe. The organization was established in the year 1971 with the name Federal Express Corporation. The services which the organization provides include third party logistics, express mail, and freight forwarding services. According to statistics of 2018 the organization has employed 425,000 employees across the globe. The corporation over the years have experienced immense growth and expanded its business through acquisition.

            TNT Express was Netherland Based organization that provides courier services in many countries around the world. Before 2011 the corporation was the part of TNT NV. However I 2011 the corporation separate from the parent corporation. The parent corporation renamed itself to PostNL. The headquarter of the organization is located in the city of Hoofddorp Netherland. The organization provides Freight and express delivery services.

Description of Acquisition of FedEx Acquisition of TNT Express

Reason behind Acquisition of FedEx Acquisition of TNT Express

In the year 2011 TNT express splits from the corporation TNT NV which was the parent corporation. TNT NV renamed itself to PostNL after that. After splitting from the parent the TNT was looking for a buyer who can acquire the express business. This acquisition was not the first deal that the corporation has experienced. In the year 2012 the competitor of FedEx UPS has tried to acquire the TNT express for $6.8 billion. However the deal did not take place because of European Commission Order. European Commission did not give permission for the deal, and that deal comes to an end.

In the year 2015, FedEx announced that it wants to acquire the corporation. The reason behind this acquisition is that FedEx wants to expand its business in European region. After the announcement of the acquisition the European commission begin its investigation regarding the acquisition and how the acquisition is going to take place. At the beginning of 2016 European commission granted the acceptance to the deal, and the deal was completed in the month of May 2016.  After the acquisition TNT express becomes the subsidiary of the FedEx Corporation. In other words FedEx is the parent corporation of the TNT Express (Berman, 2016)

Price Agreed Upon of FedEx Acquisition of TNT Express

The acquisition was agreed upon on 4.4 billion euros or $4.9 billion. TNT over the years experienced rapid growth, and at the time of acquisition the corporation values at $6.680 billion euros. The corporation has not only operations in Europe but also have operation in Asia, Latin America, Middle East, and Africa. According to statistics the corporation has employed approximately 80,000 employees. The acquisition of the corporation will allow FedEx to strengthen its business in the European region and help the business to complete with its key competitors such as UPS. With this acquisition the company has the opportunity to increase its market share across Europe (Berman, 2016).

When & How Merger Took Place of FedEx Acquisition of TNT Express

FedEx Corporation wants to expand its operation in Europe, and for this the corporation was looking for the ways through which it can expand its market share in Europe. TNT will sell its Express business has provided the opportunity to the FedEx Corporation to reach the European Market.  FedEx reach TNT in 2015 with the offer to purchase the corporation. Before that, UPS also tried to purchase the business, but European Commission prohibited the deal due to competition. However this time European commission gave permission, and FedEx acquires the company in 2016. The corporation takes this move because its rivals like UPS has also acquired other logistic businesses in the year 2015 (Berman, 2016).

Benefits Gained From Merger of FedEx Acquisition of TNT Express

Financial Gains

Profitability of FedEx Acquisition of TNT Express

Table 1: Profitability Ratios

Source: (Morning Star, 2019).

The above table is providing details about the profitability ratios of the organization. It can be seen that the profitability of the corporation has experience growth after the acquisition of TNT. The acquisition was made in 2016, and in the years 2017 and 2018, the corporation's profitability has increased significantly. Net Margin was 3.61 in 2016 which becomes 6.98 in 2018. Similarly ROA (Return on Asset) was 4.37 in the year 2016 which becomes 9.05 in 2018 (Fridson & Alvarez, 2011).

Liquidity of FedEx Acquisition of TNT Express

Table 2: Liquidity Ratios

Source: (Morning Star, 2019).

The liquidity ratios of the organization are indicating that the organization has enough cash from which it can pay its short term obligations. The liquidity position of the organization is good because the corporation maintains its cash efficiently (Fridson & Alvarez, 2011).

Efficiency of FedEx Acquisition of TNT Express

Table 3: Efficiency Ratios

Source: (Morning Star, 2019).

It can be seen from the above table and line chart that the efficiency of the organization has improved after the acquisition. In the year 2016, the asset turnover was 1.21 which improved in the upcoming years and reached 1.3 in 2018 (Fridson & Alvarez, 2011).

Financial Leverage of FedEx Acquisition of TNT Express

Table 4: Financial Leverage Ratios

Source: (Morning Star, 2019).

The corporation Debt increased in the year 2016; however in the following years the debt condition of the corporation is again becoming stable. The corporation has not taken too much debt, and currently the organization is in the position to pay back its long term loans efficiently (Fridson & Alvarez, 2011).

Reduction in Cost of FedEx Acquisition of TNT Express

The TNT cost of operations is lower which can help the organization to benefit from lower cost of operations. The lower cost of operations has the business to improve its profitability and help the business to manage their cost-efficiently. Therefore it can be said that in Europe FedEx can work with lower cost, which will help the business to not only expand its market share efficiently but also the business will have the opportunity to improve its profitability as well (Prince, 2016).

Increase in Market Share of FedEx Acquisition of TNT Express

It is quite evident that one of the biggest benefits which FedEx will achieve from this acquisition is the increase in market share. The TNT major revenue comes from European countries. 41% of the revenue of TNT comes from European region which indicates significant presence of TNT express in the European countries. It means that the acquisition will help the business to strong its hold in European countries and meet the needs of its customers. The acquisition has many long term benefits for the organization and will allow the organization to expand its business in different parts of the world. Through expansion, not only the corporation's overall value increase, but also its profitability also experience significant growth (Campbell, Edgar, & Stonehouse, 2011).

Description of accounting Methods

Cost Method of FedEx Acquisition of TNT Express

The cost method is considered the easiest method of accounting when recording the investment or acquisition activity of the business. According to this method, the acquisition or investment is recorded in the balance sheet as asset and the value of the asset is equal to the price on which the asset has been purchased. However this method is implemented by the accountants when the acquisition is another business is equal to 20% or lower than that. This method is not considered appropriate when the investment in business is above 20%. Therefore it can be said that in the case of FedEx, the acquisition of TNT Cost method cannot be applied (Sherman, 2019).

Equity Method of FedEx Acquisition of TNT Express

            The equity method of accounting is utilized when the business has a larger stake in another business. It means that if the organization has invested more than 20% it will utilize the equity method of accounting.  For Instance an organization has purchased 40% of the stocks in the organization having value of 1 million. Inequity method, the organization which has acquired 40% stake will report $400,000 as asset in the balance sheet. When the organization will declare the profit the organization that has acquired 40% stake will report 40% of the profit as its own profit. This profit will be recorded in the income statement whereas I the balance sheet, the value of your asset will increase. If the organization in which the company has invested experience loss instead of profit, then the value of the asset in the balance sheet will decline. In the case of FedEx acquisition this method is also not suitable (Sherman, 2019).

Consolidation Method of FedEx Acquisition of TNT Express

            The consolidated method of accounting is adopted when the organization has full control of the acquired corporation. According to this method, the parent corporation recorded the income, assets, and expenses as its own in the consolidated financial statements. The acquired corporation becomes the subsidiary of the organization, and all its financials are recorded in the consolidated financial statements. For instance if the organization generated $250,000 as revenue and its subsidiary generates $100,000 as revenue, then the organization will report its revenues as $350,000. However if the organization is doing business with its own subsidiary, then such sales are not recorded in the statements because consolidation accounting does not record such sales, which are conducted with your own self (Sherman, 2019).

The consolidated financial accounting method is utilized by FedEx for reporting the acquisition. As FedEx took complete control of TNT Express and it becomes its subsidiary the consolidation accounting was the right way to record the financial information. In the consolidated financial statement of FedEx, the difference between before and after acquisition can be clearly seen (Spender, 2014).

Financial statements of FedEx Acquisition of TNT Express

FedEx Income Statement of FedEx Acquisition of TNT Express

Source: (Morning Star, 2019).

In the above-presented income statement the difference can be clearly seen. Before acquisition the net income includes the number of earnings which the FedEx is generating, but in the year 2016, 2017 and 2018, the net income includes the number of earnings of TNT subsidiary as well. The sudden increase in net income in 2017 and 2018 is sign that the earning of TNT are also included in the statements (Fridson & Alvarez, 2011).

FedEx Balance Sheet of FedEx Acquisition of TNT Express

Source: (Morning Star, 2019).

A significant amount of increase in the amount of goodwill can be seen, which has been occurred due to the acquisition of the organization. Before acquisition in the year 2015 the corporation’s goodwill was at $3810 million. However in 2016 and 2017 the goodwill increases drastically and become $6747 million. It can be said that it is clearly different in the statement before the acquisition and after the acquisition (Fridson & Alvarez, 2011).

TNT Express Income Statement of FedEx Acquisition of TNT Express

TNT Express Balance Sheet of FedEx Acquisition of TNT Express

Conclusion of FedEx Acquisition of TNT Express

It is concluded that the reason behind this acquisition is that FedEx wants to expand its business in the European region. At the beginning of 2016 European commission granted the acceptance to the deal, and the deal was completed in the month of May 2016. The profitability of the corporation has experience growth after the acquisition of TNT. The acquisition was made in 2016, and in the years 2017 and 2018, the corporation's profitability has increased significantly. The consolidated financial accounting method is utilized by FedEx for reporting the acquisition. As FedEx took complete control of TNT Express and it becomes its subsidiary the consolidation accounting was the right way to record the financial information.

References of FedEx Acquisition of TNT Express

Berman, J. (2016). FedEx acquisition of TNT is made official. Retrieved from https://www.logisticsmgmt.com/article/fedex_acquisition_of_tnt_is_made_official

Campbell, D., Edgar, D., & Stonehouse, G. (2011). Business Strategy: An Introduction (3 ed.). Macmillan International Higher Education.

Fridson, M. S., & Alvarez, F. (2011). Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.

Morning Star. (2019). FedEx Corp. Retrieved from http://financials.morningstar.com/ratios/r.html?t=FDX&region=usa&culture=en-US

Prince, S. (2016). What Will the TNT Express Acquisition Due to FedEx’s Growth? Retrieved from https://marketrealist.com/2016/06/what-will-the-tnt-express-acquisition-do-to-fedexs-growth/

Sherman, F. (2019). Consolidation vs. Equity Method of Accounting. Retrieved from https://smallbusiness.chron.com/consolidation-vs-equity-method-accounting-55300.html

Spender, J.-C. (2014). Business Strategy: Managing Uncertainty, Opportunity, and Enterprise. OUP Oxford.