Analyst: DHL, FedEx deal 'makes sense'

An international financial firm has prepared an analysis for investors regarding the possibility of a deal involving FedEx and the U.S. side of DHL’s freight business.

The Jan. 24 investment research note by UBS was in response to a story in the Financial Times Deutschland, a German business newspaper, that Deutsche Post World Net (DPWN) is talking with FedEx about selling assets of DHL’s business in America to rival FedEx. The German-based DPWN is the parent company of DHL.

According to the UBS analysis, a deal between DHL and FedEx revolving around DHL’s domestic U.S. parcel business “conceptually makes sense.”

Interestingly, UBS references its own annual airfreight survey to support its claim “most customers have effectively given up on DHL USA.”

In 2007, 42 percent of customers thought it “unlikely” DHL will become a strong competitive threat in the U.S. airfreight industry, according to the UBS survey. The 2007 survey also said 14 percent of customers thought there is “no chance” DHL will become a strong competitive threat. As a result, a sum total of 56 percent of customers held an unfavorable expectation last year of DHL’s prospects to compete with UPS and FedEx in the U.S. market.

In contrast, in 2004 the unfavorable total was 31 percent of surveyed customers (26 percent saying “unlikely” and 5 percent saying “no chance”).

What’s more, in 2004 a sum total of 70 percent of surveyed customers held favorable expectations for DHL’s potential to compete in the United States with UPS and FedEx — 20 percent saying “definitely” and 50 percent saying “likely.”

The research note said, “Any deal would also likely allow FedEx to handle the U.S. distribution for DHL’s premier international parcel business.”

Rick Paterson, UBS’s FedEx analyst, elaborated on the comment when he spoke with the Dow Jones news service.

Memphis-based FedEx does not especially need DHL’s delivery assets in the United States, Paterson said. But FedEx would benefit if DHL agreed to FedEx becoming the U.S. distributor of DHL’s substantial package shipping originating in Europe or Asia, Paterson told Dow Jones.

In any event, the UBS research note — for which Paterson was one of three analysts who prepared it — said an agreement reached between DHL and FedEx “doesn’t signal a done deal.” That’s because antitrust law could be “a major stumbling block,” the note said.

A Tuesday report in the Wall Street Journal said DPWN is considering “a variety of options” to address the money-losing U.S. division of DHL.

DPWN Chief Financial Officer John Allan in an interview told the Wall Street Journal whichever option is settled on, he expects clarity in “a matter of months” in his words.

In an interview with the Wilmington News Journal last week, DHL Americas Director of Corporate Communications Jonathan Baker said the company in general would not respond to future media reports “speculating” on the future of DHL in the United States.

With headquarters in Zurich and Basel, Switzerland, UBS operates in more than 50 countries and from major international centers. UBS employs more than 80,000 people.