United Parcel Service Inc., the largest privately held package delivery company in the U.S., will pay $6.85 billion for Dutch competitor TNT Express N.V.

The transaction will allow UPS to become the market leader in Europe, and will also allow UPS to gain market share in fast-growing Asian and South American markets. UPS first entered the European market in 1976 by establishing an operation in Germany, and grew rapidly through acquisition. Before the business combination that was just announced, revenues from its European activities amounted to about 14 per cent of UPS’ total revenues of some $53 billion.

About 65 per cent of TNT’s revenues are derived from European operations, but it also has a growing customer base in China, India and Brazil. The combined business will have annual revenues of some $60 billion, with about 64 per cent of revenues expected to be derived from U.S. clients, about 22 per cent generated in Europe, the Middle East and Africa, and about 14 per cent expected to be derived from clients elsewhere.

The deal will bring annual cost savings of some $500 to $700 billion after four years of restructuring, resulting from rationalization of overlapping activities in different countries. UPS believes the cost of rationalizing operations over a four-year period will amount to about $1 billion.

The transaction is expected to be closed during the third quarter.


Update: UPS withdraws offer for TNT Express – Click here