When former TNT chief executive David Mortimer made a visit to Memphis, Tennessee, in the mid 1990s to meet FedEx chief executive Fred Smith, TNT’s 50 per cent-owned European courier business was bleeding red ink.
Mortimer knew something had to be done and he approached Smith with an idea.
The plan was to sell the GD Express business to FedEx, with TNT, FedEx and GD’s shareholders all ending up with a stake in the combined company.
“FedEx was the major express carrier in the US,” Mortimer recalled yesterday. “We were losing money in Europe and I approached them with the proposition. They saw some merit in talking to us. It struck me and my colleagues at TNT as being a very logical solution.”
The deal didn’t come off, but it ultimately led to the sale of the Sydney-based TNT to KPN, the Dutch post office and telecommunications company, in a friendly $2 billion takeover in 1996.
Now, 20 years later, and with his finances boosted by a strong US dollar, FedEx’s Smith has finally pulled off the deal envisaged by Mortimer with a $US4.8bn ($6.25bn) bid to buy the Dutch-owned TNT.
FedEx has a smaller footprint in Europe than US rival UPS and overlaps less with TNT’s existing business. FedEx has a sizeable air-express delivery operation in Europe, but it lags behind in the ground-delivery business.
The merger will create a global logistics powerhouse, which would compete against UPS and Deutsche Post DHL Group, the market’s dominant players.
“It’s a very sensible move,” Mortimer said yesterday of the FedEx takeover.
Rod Eddington, a one time head of Ansett and the former chief executive of Cathay Pacific and British Airways, yesterday described the deal as “another example of consolidation in the logistics sector”.
“Fed Ex is a world-class player, built and run by one of the most respected leaders in the industry — Fred Smith. The acquisition would give FedEx an enhanced European network and will provide them with better global reach,” Sir Rod said.
Under Mortimer’s proposed deal 20 years ago, Australian shareholders would have ended up with a stake in FedEx. “When I was chief executive, we engaged in conversation with FedEx to merge with what was then GD Express on a share exchange basis,” Mortimer said.
GD Express’s other five shareholders were the post offices from Germany, Holland, France, Sweden and Canada.
Mortimer flew into Memphis one afternoon. He had a quiet dinner with Smith and a colleague, leaving the next morning.
“No, I didn’t see Elvis,” he said yesterday when quizzed about the trip to the city that was also the home of the late King.
Smith was interested and the conversations were followed up with a later meeting in New York with Mortimer and the chairman of Deutsche Post. “Things were progressing quite well with FedEx and we were moving in the right direction,” Mortimer said. “But in order for it to succeed it needed the approval of all the post offices.
“The deal fell through because Deutsche Post wanted to secure a bigger stake in the combined business.”
When the five post offices could not agree among themselves, talks ended. “That led to the discussions with the Dutch post office, which led to the sale of TNT in 1996,” Mortimer said.
While TNT has had several owners, the company has its roots in two trucking companies founded in the post-war period in Australia.
Ken Thomas set up Thomas Nationwide Transport in 1946 in Sydney with a single truck and the business quickly took off.
Hungarian migrant Peter Abeles founded trucking company Alltrans with fellow migrant George Rockey and in 1967 the company merged with Thomas Nationwide Transport. The combined company became known as TNT, operating a fleet of about 500 trucks.
Led by Abeles, whose close friends included union leader Bob Hawke and former NSW premier Robert Askin, TNT was built up to become an international transport company. By the 1980s, it had operations in more than 100 countries, including the US, Brazil and Europe. At its height TNT called itself the second biggest transport empire in the world with operations in road, rail, sea and air that included a 50 per cent stake in domestic airline Ansett.
In Europe, Abeles had a grand vision of building up an international parcel delivery business. In 1983, he bought Skypak, the international courier operations of Gordon Barton’s IPEC Holdings, which operated in 26 countries. He followed up with the acquisition of IPEC Europe, a leader in Europe’s international express freight market. Abeles was enthusiastic about opportunities in Europe with the prospect of the European Union of 1992 and the new low-noise “Quiet Trader” BAe 146 aircraft for making late-night deliveries to European cities.
But Abeles’s rapid global expansion and his penchant for spending up on new aeroplanes and other assets, including a $300m revamp of Hayman Island off Queensland, strained the TNT balance sheet.
An acrimonious strike by Ansett pilots in 1989 caused added problems and by the early 90s Australia was in a serious recession and TNT was struggling under a huge debt load.
In 1992, Abeles reached a deal to sell half of the TNT Express business in Europe to the five post offices, renaming it GD Express. This allowed it to wipe $600m off its balance sheet, but its total debt was still well over $1bn.
Concerned at the massive losses the company was chalking up, — more than $200m in
1992-93, the board later forced Abeles to step down as chief executive, replaced by finance director David Mortimer, with Abeles becoming deputy chairman.
Abeles wanted to float the European businesses and split the profitable businesses from the unprofitable operations, but in 1993 he was forced out of the company after a bitter board split when TNT chairman Fred Millar backed Mortimer’s alternative strategy. The low-key Mortimer was left to sort out the mess of the sprawling international transport house that Peter Abeles had built at a time when world economies were under strain.
“We were losing $100 million a year on our European businesses,” Mortimer recalled yesterday. “We had a lot of ventures which were losing money. One of them was our joint venture with the post offices in Europe which was holding us back. They were eating up our income and we had to do something. Our airline leasing business was very capital intensive and we didn’t have the capital to continue to support the European business.”
In September 1996, TNT sold its 50 per cent interest in Ansett to Air New Zealand and three months later Mortimer did the deal to sell the GD Express stake KPN. TNT’s other assets, including freight, shipping and aircraft leasing, were soon sold off marking the end of TNT’s role as one of Australia’s corporate giants.
The acquisition of the Europe business proved to be a boon for its Dutch owners, which bought out the other post offices from GD Express. The business dominated the European express mail business and became one of the world’s largest parcel distribution and logistics groups, competing alongside FedEx, United Parcel Service and DHL.
In 1998, the mail, express and logistics part of the business was spun off from KPN and listed on the stock exchanges of Amsterdam, New York, London and Frankfurt. Meanwhile, Deutsche Post began buying into America’s DHL, taking control of it in 2002.
In 2011, TNT Express was demerged from its parent, listing on the Euronext Amsterdam Stock Exchange. In 2012, DHL and FedEx rival, UPS announced its plans to buy the company for $US6.7bn. The deal fell through in 2013, when it was blocked by European competition regulators.
This week, Fred Smith finally got his chance to buy the business when he offered $US4.8bn for TNT Express, which will provide the backbone for the company to expand in Europe.
It was a long time coming, but finally the deal that Mortimer and Smith talked about in Memphis has come to pass.