FedEx TNT Express Call Transcript – April 7, 2015 A. Mickey Foster Vice President - Investor Relations, FedEx Corp. Good day and thank you for joining the call to discuss our announcement that FedEx Corporation has entered into a definitive agreement to acquire TNT Express. This call is being broadcast from our website, and the replay and podcast will be available for about one year. Joining us on the call today are members of the media. During our question-and-answer session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate. If you’re listening to the call through our live webcast, you’re welcome to submit your question via email or as a message on StockTwits.com. For email, please include your full name and contact information with your question and send it to our [email protected] address. To send a question via StockTwits.com, please be sure to include $FDX in the message. Preference will be given to inquiries of a long-term strategic nature. I want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call may be considered forward-looking statements within the meaning of the Act. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. To the extent we disclose any non-GAAP financial measures on this call, please refer to the Investor Relations portion of our website at FedEx.com for a reconciliation of such measures to the most directly comparable GAAP measures. Joining us on the call today are Fred Smith, Chairman; Alan Graf, Executive VP and CFO; Mike Glenn, President and CEO of FedEx Services; Chris Richards, Executive Vice President, General Counsel and Secretary; Rob Carter, Executive Vice President, FedEx Information Services and CIO; David Cunningham, Executive Vice President and COO of FedEx Express; and Elise Jordan, Senior Vice President and CFO of FedEx Express. I’ll now turn the call over to our chairman, Fred Smith, for his thoughts on today’s announcement. Fred? Frederick W. Smith Chairman, President & CEO, FedEx Corp. Thank you, Mickey. Welcome to our conference call, everyone, to discuss our plans to acquire TNT, a leader among global express delivery companies with a very strong position in Europe. We believe this strategic acquisition will add significant value for FedEx shareowners, team members, and customers around the globe. We’re very proud in the intercontinental and intra-European networks we have built over many years. FedEx Express has a multibillion dollar European business, and it is growing daily. We have long recognized the need for a complementary pan-European ground network. This acquisition allows us to more quickly broaden our portfolio of services to take advantage of market trends, especially the continuing growth of e-commerce. TNT is an excellent strategic fit with FedEx. It will expand our global portfolio and dramatically lower our cost to serve European markets by increasing density in our pickup and delivery operations. It enhances global connectivity, strengthening networks in Asia- Pacific, the Middle East, and other emerging markets and offering a wider range of global transportation solutions for our customers. FedEx has a very strong track record of incorporating acquisitions into FedEx. We expect similar success with TNT, as our cultures are very similar. We have the Purple Promise: I will make every FedEx experience outstanding. TNT is similarly focused on serving customers and delivering value for shareholders and supporting the communities where they live and work. In summary, we’re excited about the strategic opportunity to bring FedEx and TNT together, and we look forward to delivering an even better customer experience in future years. I’ll now ask Alan Graf to review some of the specifics related to the transaction. Alan? Alan B. Graf, Jr. Executive Vice President & CFO, FedEx Corp. Thank you, Fred. Good morning and good afternoon to those of you listening around the world. I would like to give you some of the financial highlights of this strategic transaction before we open the floor for Q&A. FedEx will acquire TNT for €8 per share, for a deal totaling €4.4 billion, a 43% premium over TNT’s volume weighted average share price over the last 30 days. The transaction will be all cash through a combination of our existing cash and future debt financing. 1 Due to the nature of this transaction, including related fees that we will incur and the time required to close the transaction, TNT will have a minimal impact on FedEx’s earnings in FY 2016 and FY 2017. However, we expect TNT to be very accretive to our earnings thereafter. FedEx will isolate and report all TNT P&L impacts each quarter, so that the Express profit improvement plan progress remains clear. The transaction is subject to customary conditions and regulatory clearances, including a competitive review in Europe and several other countries. The combination of FedEx and TNT is not expected to raise antitrust concerns, principally as a result of the relative strengths of competitors in the relevant markets in the EU and in other relevant jurisdictions. We expect the transaction to be completed in the first half of calendar 2016. PostNL N.V. has committed to tendering the 14.7% of outstanding TNT shares that they currently own. As Fred noted, TNT will be highly complementary to our global operations. The company generates nearly all of its approximate €6.7 billion annual revenue from outside of the U.S. from its major position in Europe and solid presence in Asia-Pacific, the Middle East, and other emerging markets. The company delivers more than 1 million shipments around the world every day, utilizing a network of over 1,000 hubs and depots. We believe that this acquisition is a smart, cost-effective way to significantly expand our global capabilities and improve our densities. Many of the markets where TNT has a strong presence, such as Europe, are locations where we currently have a relatively small share of regional and domestic deliveries. TNT and FedEx assets and infrastructure will be optimized, resulting in a more efficient network than exists for either company today. For example, we expect increased efficiency in our hub and feeder operations, reduced pickup and delivery cost, particularly in Europe, due to greater stop density, and lower support function costs. We do expect revenue opportunities from a TNT and FedEx combination, as the combined entity will offer a more comprehensive portfolio of business solutions than either company is able to offer today. We also expect improved FedEx service, such as earlier delivery times and later pickup times, in a number of key markets in Europe. The combination offers a unique opportunity to strengthen the resource base of both companies, thereby offering prospects for employees of the combined companies. The combined companies will cooperate to avoid any significant redundancies in the global or Dutch workforces. The combined companies will foster a culture of excellence, where qualified employees will be offered attractive training and national and international career progression based on available opportunities. FedEx will develop a very comprehensive integration plan with TNT, and we will talk more about our plan and related costs at a later date. We believe this is a fantastic transaction, with the combination expected to drive incremental revenue, earnings, and cash flows for our company and long-term value to our shareholders. We are extremely excited about the benefits it will bring to all of our stakeholders. Mickey for Q&A. A. Mickey Foster Vice President - Investor Relations, FedEx Corp. Thank you, Alan. We are now ready to take the first question. Please remember to limit your questions to those of a strategic nature specific to this transaction. We will defer on questions concerning this quarter’s operations and FY 2016 outlook until our fourth quarter conference call in June. Okay, we’re ready for the questions. We will open the call for questions. Operator: We’ll take our first question from Robert Salmon with Deutsche Bank. Scott Group Analyst, Wolfe Research Hey, thanks. Good morning, guys. So, Alan, you made a comment that it shouldn’t have an impact on fiscal 2017 earnings but should have a lot of accretion longer term. So if the deal closes in the first half of calendar 2016, why won’t we see accretion in fiscal 2017? And then that comment implies, though separately, that there would be some pretty material synergies, any rough thoughts on what the synergy number could be that you’re targeting? 2 Alan B. Graf, Jr. Executive Vice President & CFO, FedEx Corp. Scott, this is Alan. Once you consider the acquisition before all the fees that we pay and the amortization of intangibles, it will immediately be accretive. However, we have to take into consideration those accounting charges. And also, we plan to be very aggressive in the first year on investing in integration with this business. So that’s why we’re saying what we’re saying about 2017. But believe me, after that, I think you’re going to like what you see. Operator: We’ll take our next question from Tom Wadewitz with UBS. Tom Wadewitz Analyst, UBS Good morning and congratulations on the deal. Let’s see. So can you give us maybe a sense of where the synergy opportunities would be? I guess I think of the potential, I guess, operating leverage in pickup and delivery in Europe.