UPS and TNT Express Business Model - Assignment Example

?UPS and TNT Express business model; A business model can be defined as the foundation of an organization in creating value and using part of it to make returns from its investment in and utilizing of resources. Thus, a business model makes a clear framework of what the business strategy is implemented by the firm’s activities. The business models of United Parcel Service incorporation and TNT Express is thus, defined by their value creation element; this is an aspect on how a firm tries to create value in its organization activities, for clients. Its market positioning among its competitors and the pricing criteria on the services and goods it trades on are the important factors of this element. United Parcel Services incorporation on this element regard on its business model can be contributed by its type of business and how it implements its business strategy.UPS incorporation is a business entity that engages primarily in delivering of packages and documents (Fairburn and Kay 1989). Also, in the recent periods, the firm has extended its service business to supply chain solutions that involves freight forwarding, customs brokerage, fulfillment, returns, financial transactions and even repairing services. The firm also, in extension offers less than truck transportation services where it is the leading provider in U.S market. The firm delivers to 6.1 million consignee worldwide, packages to 1.8 million shipping customers each day. Its supply chain services also, extend to clients in 175 countries (Libert and Samek 1997). The firm has invested in both ground and air network worldwide to offer its service deliveries to its customers under a single integrated pickup and delivery service structure. The firm has positioned itself in the market as the leading company by leading in technology development in order to improve service delivery among the global package delivery and supply chain management companies (Hubbard, 2001). The firm has a flexible scale of services and integrated solution that allows clients have an opportunity to choose the delivery service that will fulfill their intended requirement and the price they can afford from the variety of the services offered (Henry, 2002). The firm has invested a lot in equity branding by delivering quality services that are reliable and innovative products (Damodaran, 1997). This has been made successful through investing in employees by enabling them to have stock ownership in the firm. Thus, the employees dedicate their efforts in making the firm the best among the rest because they view the company as one of their own. TNT Express is involved in the service business of transferring documents and goods globally (Porter,1985). Service delivery is customer oriented because the clients are the one who selects the time and day when to pick up an order and when it should be delivered (Gropelli, 2006). The firms culture on being a robust and strong attitude and spirit of ‘can do’, has helped the employees in solving problems to carry out daily duties and responding to shareholders and the outside world of TNT Express. TNT Express positions itself in the market as the most admired delivery company by working on the core values of being a passionate company to its customers, people caring, keeping promises and working on mentality of I can do attitude. In order to achieve its values, the company has developed and implemented a TNT Express Integrity Program and an Introduced TNT Express Business Principles structures (Reish, 1988). Thus, the acquisition of TNT express will raise the new firm performance in the parcel and document transfer industry competitively because of the combined synergy that will be realized by the merger idea. Synergy of the new firm will be realized due to the market competitive each of the firm have in their respective domestic markets. UPS Incorporation as the leading industry player in North America will enable TNT Express services to be implemented in North America as it has rich information on how to penetrate the domestic market. Also, TNT Express will be of marginal benefit towards spreading of UPS Incorporation service deliveries due to its well connected road freight in Europe. With such a historical success of the two companies in their respective home markets, the combined strength is expected to raise their dominance in the world market. The two companies have historical success in their respective market of growing up from a small business entity to what they are today, thus, the policies behind their growth can be integrated to produce a powerful market business entity in the world. as large company in the parcel and document transfer industry, the company will increase sales volume which will result to profit increases. Thus, the combined comparative advantage from the two companies will make the new firm more profitable and increase the returns to shareholders. Market prospect of becoming successful in the future because of the two company’s combined potential strength is the leading reason behind the idea of merging the two companies. 3.0 Synergies expected from the acquisition; The following strategic reasons are the one which influenced the acquisition of TNT Express by UPS Incorporation (Atlanta and Hoofddorp, 2012). 1. It is expected that the merger will generate a world leading logistic industry. The annual revenue expected to be raised after the transaction is expected to be $60 billion and an integrated global network. 2. The two companies by coming together are expected to reinforce the transport technology and customer service due to their complementary strengths. 3. UPS has held the vision of entering the European market. Thus, the merger underlines their mission to invest in Europe. 4. Under the TNT Express leading road network freight across Europe, UPS is expected to expand logistical services in European market. 5. UPS Incorporation dominance in North American market is expected to benefit TNT Express to access the market and deliver its services of logistic solutions on global freight forwarding and distribution services. 6. The integration will raise UPS existing market position in a fast growing market in pacific Asia and South America. 7. The shareholders of UPS are expected to increase their value of investment from the international market growth. 8. The merger is expected in time of one year to be an EPS accretive. 9. The cultural strength of the two companies in being an efficient and effective management teams, is expected to benefit them in customer services, operational excellence and good corporate citizenship. 10. The employees of the two companies are expected to benefit in career opportunities. The expected synergies from the merger do indeed justify the premium paid by UPS Incorporation because in the future the company value will increase (Ravenscraft and Scherer 1987). This will increase the share prices of UPS Incorporation shareholders in the future which will be a capital gain to them. From the computation of the two combined companies enterprise value in the excel work attached, the value of the combined enterprises is expected to be $1616.02 millions and the maximum price that should be paid to acquire TNT Express is ($925) based on the expected high growth rate in the first five years. 4.0 Contributing factors leading to acquisition of TNT; (a) Firms merge because they intend to gain from the following factors. 1. Efficiency; firms do merge with the expectations that they will emerge more efficient due to the increase in capital, new expertise, reduction of duplication processes in production and enjoy economies of scale. 2. Market power; market powers are expected to increase with companies of the same industry merging (Davids and Button, 2008). Once they merge they tend to form a monopolistic firm that can control the prices and the quantity of goods produced. Also, the intention of the merger could be to increase their competitive strength in the market they trade in over their competitors which might make the new phase as the leading market force. 3. Increased market share; when the two companies do merge, they will become one big firm. The market share will eventually be the sum of the two firms market shares which means the market share of the new phase will increase. With a high market share, the new firm is expected to enjoy from economies of scale, increased sales volume and eventually increased profit returns. 4. Tax advantages; UPS may have considered to buy TNT Express because the firm has been making losses in the past therefore, the tax remittance to the government will be low. This will allow the firm to explore the market in the initial periods without paying taxes (Davids and Button, 2008). 5. Diversification; once the two companies merge, they will smoothen their earning which will result to a smooth stock prices in the future (Wanner, and Lila, 1982). This will attract investors to invest in the company stock due to the confidence level attributed by stable stock prices. This will result to an increased capital base due to increased equity contribution from the investors. 6. Increased geographical coverage; UPS may have to merge with TNT Express in order to extend their geographical coverage in European market. With an increased geographical coverage they will be able to serve a high population which will eventually result to increase sales volume than will have achieved as a single company. With increased sales volume the profit margin will be expected to increase which will be an advantage to the share holders. 7. Expertise and technology knowledge sharing integration; the two firms expect to gain from the employees of the two companies coming together to boost their efficiency (Rankine, and Howson, 2006). Efficiency is expected to come from integrated expertise and technology level of the employees. With an efficient team, the productivity of the firm will increase leading to increased profitability. 8. Size increment of the firm; the merger is expected to make the firm to become larger which will make the firm compete better with its rivals. A large company is more visible to clients than a smaller company which will attract more clients and investors to increase its performance and profitability (Hubbard, 2001). (b) The merger may fail to improve the values of UPS due to the past performance of TNT Express in its dominance market Europe. The market structure of TNT Express is very suitable for UPS to increase its trade volume in Europe (Ronald and Lawrence 1998). The road freight network that TNT express has across Europe has capacity to connect every pick up and collection center. This will boost the operations of UPS services across Europe without having to establish a new infrastructure network. The value of UPS may fail to improve due to the losses that TNT Express has undergone in the past. This is because the firm has to work on reviving the retained earning which has declined because TNT has been paying share holders dividend by retrieving from the retained earning funds. Thus, the shareholders will in the first years have to under go without receiving dividends even after making such a major investment. Also, the employees may trigger resistance to cooperate with the new management that may be introduced in the merger discussions (Appelbaum and Yortis 2000). This might delay the efficiency gain the merger is expected to bring to the new firm which will slow production leading to fewer profits. This is based on the fact that new managers will be introduced to many of the TNT Express centers across the world with those of UPS origin. Thus, it will take time for the new management to win the workers loyalty and corporation (Hughes, 1989). This will further be complicated by the scaling of some workers to be replaced by workers from UPS Incorporation. This will complicate the employee’s cooperation in sharing market information. References: Hughes, A, 1989. The Impact of Merger: a survey of empirical evidence for the UK mergers. New York, McGraw Hill Press. Appelbaum, S and Yortis, H, 2000. Anatomy of a merger, Management Decision. London. Oxford press. Ronald, A and Lawrence J, 1998. Making the Deal Real; How GE Capital Integrates Acquisitions. Harvard Business Review, Volume 76 Issue 1. Ravenscraft, D and Scherer, F, 1987. Mergers, Sell-offs and Economic Efficiency. New York. McGraw Hill Press. Henry, D, 2002. Mergers; Why Most Big Deals Don't Pay Off. New York. McGraw Hill Press. Fairburn, J and Kay, M, 1989. Mergers and Merger Policy. Oxford. Oxford University Press. Reish, D, 1988. The Impact of Taxation on Mergers and Acquisitions. Chicago. University of Chicago Press. Libert, D and Samek, S,1997. Cracking the Value Code: How successful businesses are creating wealth in the New Economy. New York. Harper Collins Publishers. Porter, E, 1985. Competitive Advantage. New York.The Free Press. Gropelli, A, 2006. Finance: some merger consideration. New York. McGraw Hill Press. Damodaran, A, 1997. Corporate finance: theory and practice. New York. Harper Collins Publishers. Hubbard, N, 2001.Acquisition strategy and implementation. Oxford. Oxford University Press. Wanner, A, and Lila, R, 1982. Acquisition Management. . London. Oxford press., Rankine, D, and Howson, P, 2006. Acquisition essentials: a step-by-step guide to smarter deals. New York. Harper Collins Publishers. Davids, K and Button, C, 2008. Dynamics of skill acquisition: a constraints-led approach. London. Oxford press. United Parcel Service and TNT Express to Create a Global Leader in the Logistics Industry, Atlanta and Hoofddorp, media release, 2012, viewed 1 May 2012. Available. . Read More