United Parcel Service Inc. (UPS) outlined plans to use a higher percentage of cash to finance its purchase of TNT Express N.V. (TNTE.AE, TNTEY) and received authorization to buy back an additional $5 billion in stock.
In March, the shipping giant reached an agreement to acquire TNT in a deal valuing the Dutch package shipper at around EUR5.16 billion. TNT Express is the smallest of the big four global package shippers, and while it has struggled somewhat in recent months, the merger would give UPS a market-leading position in Europe to round out its big domestic U.S. presence and expanding Asian business.
UPS expects to use about $5 billion of available cash and issue about $1.8 billion in new debt to finance the acquisition, a $2 billion increase in cash from its prior guidance. The company said it would determine maturity details and a timetable for the new issuance at a later date.
The acquisition, which must be reviewed by European Union regulatory authorities, is expected to close in the third quarter.
"UPS's legacy of financial strength allows us to complete the acquisition of TNT primarily using cash," Chief Executive Scott Davis said. "At the same time, UPS remains committed to its policy of shareowner returns through dividends and share repurchases."
As a result of the increased use of cash, the company lowered its view for share repurchases this year to $1.5 billion, from the $2.7 billion it predicted in January. It expects the same level of activity in 2013.
UPS continues to face a weak global air-freight market, which has suffered from slumping volume in Asia and a drop in exports to the U.S., though the shipping giant said earlier this year its domestic package shipments are rising at a brisk pace. UPS has said it expects U.S. package volume to rise 2% to 3% this year, outpacing the slight growth seen in 2011.
The new stock buyback program has no expiration date and replaces one originally announced in 2008.
Last month, UPS reported its first-quarter earnings rose 6% on stronger profits in its U.S. package and supply chain and freight businesses, though profit in its international package unit declined.
Shares were off 2 cents at $78.05 after hours. The stock is up 6.7% this year through the close.
-By Lauren Pollock, Dow Jones Newswires; 212-416-2356; [email protected]