TNT Express’ unwanted Brazilian baggage?

What is going on at TNT Express? On Thursday the company stated that its attempt to sell its Brazilian business had failed, commenting that “TNT Express has judged it not possible to realise a transaction on acceptable terms”. This might be construed as simply the inability to agree a price, however TNT Express embarked on the sale process because the business was losing so much money, therefore the offers must presumably have been very low to justify rejecting them.

One option ought to be closing down the operation, however surely this would  lead to further write-downs beyond the substantial levels already entered into. As TNT Express is not under any short-term financial pressure the management may view this as unnecessary pain. Rather it seems that Tex Gunning, TNT’s CEO thinks that the Brazilian business is on the road to profitability asserting that, “In 4Q13, performance continued to improve in line with the 3Q13 year-to-date trend”, thus giving him more options to retain the business and possibly sell it at a later date.

So far TNT Express’ disposal programme has been broad and fairly successful. From 2012 onwards TNT has been selling non-European assets, defining them as ‘non-core’. It has sold its domestic road freight business in China, its Indian business and reduced its air freight capacity by selling aircraft. It retains an international express business out of China and its domestic business in Australia. Such a structure might be described as a portfolio of businesses rather than any form of network, something that can only be emphasised by the retention of the Brazilian operation.

The central challenge of TNT Express remains the ability to create a growing and profitable business in Europe as outlined in its ‘Deliver!’ cost control initiative. It is not clear how retaining a Brazilian business will contribute to this. Rather it implies that TNT Express is having to adapt to an underlying weakness in the Express market that is resulting in low valuations for TNT Express’ assets, making them difficult to dispose of.