Euro-Dollar Trades Help UPS Cover TNT Breakup Fee

Profit on trades related to proposed purchase offset the fee UPS paid when regulators blocked the deal.

United Parcel Service Inc. profited enough from euro-dollar trades related to its proposed purchase of TNT Express NV to make up for the breakup fee incurred when regulators blocked the deal.

UPS converted dollars into euros throughout 2012 in anticipation of using cash for half of the 5.16 billion-euro ($6.6 billion) deal, with a surge in the last half when the euro was “quite low, in the $1.20s,” Chief Financial Officer Kurt Kuehn said yesterday in a phone interview.

“Once we realized the deal wasn’t going through, we moved it back to dollars in March” and put a hedge in place to protect the trade, said Andy Dolny, UPS’s treasurer and head of investor relations. During the quarter the swap was made, the euro had an average value of $1.32. That compares with $1.2860 in 2012, when it reached a yearly low of $1.2043 in July.

The conversion helped generate a $213 million after-tax currency gain in the three months through March, more than compensating for an after-tax charge of $177 million from the breakup fee that Atlanta-based UPS paid to TNT and other transaction costs.

The company typically does smaller amounts of out-of-the-money collars, or protective options moves, to reduce the volatility of earnings, and this exchange was “unusual because we had one big event happening,” Kuehn said.

UPS went after Hoofddorp, Netherlands-based TNT to double its footprint in Europe so it could better compete with Deutsche Post AG’s DHL, which dominates service in the region. It would have been the biggest purchase in UPS’s 105-year history.

UPS advisers Morgan Stanley, UBS AG, and Bank of America Corp. were set to reap as much as $30 million in fees if the purchase was completed, according to New York-based research firm Freeman & Co. Sell-side advisers including Goldman Sachs Group Inc. and Lazard Ltd. were slated to earn as much as $25 million.

 

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