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DHL, Airborne Confirm $1 Billion Ground Delivery Deal

Deutsche Post World Net’s DHL Worldwide Express unit will buy the ground delivery business of U.S. freight shipping firm Airborne Inc. for $1.05 billion, the companies confirmed Tuesday.

Upon conclusion of the acquisition, Airborne’s air operations will be separated from its ground operations and will become an independent public company called ABX Air Inc. The deal, which is subject to shareholder and regulatory approvals, is expected to be completed this summer.

ABX Air will be wholly-owned by Airborne’s current shareholders, who will each receive one share of ABX Air for every Airborne share they hold.

Both companies said that the merger creates a stronger third competitor — with the United Parcel Service and FedEx — in the U.S. express delivery market and will bring the benefits of intensified competition and enhanced service to millions of small- and medium-sized businesses that purchase expedited door-to-door delivery of small packages and documents.

“The UPS/FedEx duopoly has a 79 percent share of the U.S. express delivery market, and the combination of DHL and Airborne will enable us to create a much stronger competitor, which will benefit a broader range of express delivery customers,” said Carl Donaway, chairman/CEO of Airborne Inc., Seattle. Donaway will become the CEO of the enlarged DHL business in the U.S.

“In the markets we compete in today, made up primarily of large, corporate accounts, Airborne’s price levels are substantially lower than our competitors,” he said. “The expanded DHL business will have the capital and resources to leverage this value into the small to mid-sized marketplace. “

Uwe Doerken, CEO of Brussels-based DHL Worldwide said the “combination will strengthen DHL’s presence in the U.S., and our global presence will bring significant benefits to Airborne customer.”

Airborne is the third largest air overnight parcel carrier in the U.S., with an 18.82 percent market share in the air overnight category, delivering approximately 356 million domestic parcels in 2002. DHL has the world’s most extensive international parcel delivery network, with service to 120,000 destinations in more than 220 countries worldwide. Although DHL has the leading market share in international express delivery outside the U.S., it has less than a 2 percent share of the U.S. air overnight domestic market and currently lacks a ground delivery network in the U.S..

The U.S. ground operations of Airborne and DHL will operate under the DHL brand.

Regulators are expected to oppose the deal because Airborne may be dependent on DHL for its business, in conflict with federal laws that prohibit foreign control or ownership of more than 25 percent of any carrier. The planned spin off of the 116-airline operations at Airborne is partly aimed at satisfying those laws. In addition, they say the threat to competitors such as United Parcel Service Inc. or FedEx is minimal in the short-term, since the deal will likely meet with DOT resistance and potentially be tied up in federal courts.

ABX Air will have its own Board of Directors, management, independent auditor and SEC financial reporting requirements. The Chief Executive Officer will be Joe Hete, who is currently the senior operating executive of Airborne’s airline operations.

To ensure ABX Air continues to meet U.S. citizenship requirements, its certificate of incorporation will include standard mechanisms to prevent foreign entities from gaining a control position, including share ownership limits and foreign owner share registry.

On completion of the transaction, ABX Air and DHL will enter into “arms-length” commercial agreements that will govern their relationship, including an aircraft, crew, maintenance and insurance agreement under which the new airline company will provide air service to DHL's ground business. It will also provide these services to third parties.


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