United Parcel Service 747-400. Courtesy, UPS

United Parcel Service (UPS), saying it is focused on creating long-term value for shareholders, reached an agreement Monday with TNT Express to acquire the Amsterdam-based delivery operator for €5.16 billion ($6.8 billion).

The deal, if approved by the two companies' shareholders and regulators on both sides of the Atlantic, would create a mega-cargo transport company that will generate more than $59 billion in revenue annually. UPS and TNT have been negotiating since at least last month, when the Atlanta-based delivery giant made an unsolicited bid for its European rival (ATW Daily News, Feb. 21). UPS is aiming to close the transaction in the 2012 third quarter.

UPS chairman and CEO Scott Davis told analysts on a conference call that the deal would mark "the largest investment ever made by UPS by far." The companies will be merged under a four-year integration plan, he added, explaining that the combination will be done in a deliberate way to avoid any service disruptions. "It's going to take time, but in the long run we did this for the future," he said.

UPS is already a formidable player in Europe and combining with TNT should enable it to eventually compete head-to-head against market leader DHL (ATW Editors' Blog, Feb. 21). "We've got a lot of experience working in Europe," Davis said. "We have over 40,000 employees in Europe today."

UPS estimated the transaction will bring annual pre-tax synergies of €400-€550 million realized four years after closing. The deal will be financed with $3 billion in existing cash and "new debt arrangements," UPS said.

"We think we create substantial economic value with the merging of the two companies," Davis said. "This is a significant milestone in our history."