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TNT Logistics sold in $2 billion deal

By Timothy J. Gibbons
Published by Florida Times-Union on August 24, 2006.

TNT Logistics has been sold to a private equity firm for 1.5 billion euros -- almost $2 billion -- meaning a new name and a sharper focus for the firm, whose North American headquarters is in Jacksonville.

The impact on the 350 employees TNT has here is expected to be positive, said David Kulik, who was group managing director of the business when it was owned by Amsterdam-based TNT NV and will be chief executive officer of the new company.

"Jacksonville will continue to be the headquarters for North America," Kulik said from Amsterdam a few hours after the sale was completed. "If anything, my vision of how I'm going to change the organization worldwide means that Jacksonville will tie or win," either keeping the same number of employees or growing.

The company that became TNT Logistics, with operations in 28 countries and 36,000 employees, has deep roots in Jacksonville: Founded here with three employees in 1981 as CTI Logistx, the company was purchased in 1993 by railroad company CSX Corp., which sold it to TNT in 2000.

Last year, TNT said it was selling the division in order to exit the contract logistics business and focus on its two other operations: Delivering mail in the Netherlands and competing with UPS and FedEx in delivering express packages. Those businesses, which require a network of employers and mail drops, don't fit in well with the contract logistics business, in which a company works on a variety of individual projects.

But TNT Logistics- - whose new name is being worked on by three different creative firms -- will be happy to focus on that business, Kulik said.

"Our business is logistics," he said. "There's no parent company as such; no corporate umbrella. This provides so much clarity in my mind and focus."

The new owner of the business is private equity company Apollo Management, an international company that has invested more than $16 billion in the past 17 years. The company earned a reputation as a "vulture" investor, according to the business information company Hoovers, as its founder -- former Drexel Burnham Lambert executive Leon Black -- led it to specialize in picking up distressed assets on the cheap.

Now working on its sixth investment fund, Apollo recently has been focusing on transportation-related companies, including California trucking company Pacer International and bulk transportation services provider Quality Distribution.

Apollo was one of four dozen companies that originally expressed interest in buying the division, a group that included other big players in the equity investment field as well as transportation sector companies that might have found TNT to be a strategic fit.

Executives with the equity fund did not return three messages left throughout the day Wednesday, but in a statement said that its acquisition of TNT Logistics was based "on its belief in the continued convergence of contract logistics and transportation services."

"Apollo's experience with its other logistics portfolio companies has shown that the bundling of contract logistics with transportation services is becoming increasingly important," the statement said.

Combining TNT's assets with other companies as part of a long-range strategic building plan makes sense, said Perry Trunick, executive editor of Logistics Today, particularly because simply doing contract logistics isn't the type of business typically attractive to equity investors. Contract logistics requires a lot of up-front investment on the part of the company as it, for example, builds warehouses, with revenue coming in farther down the road.

"It's delayed gratification in a sense," Trunick said. "You don't see profits the moments you sign a contract. That doesn't strike me as a model that an equity firm would have as much interest in."

What might have made the division -- which had close to $4 billion in revenue last year -- even more attractive is an ability to increase its margins as a stand-alone company, said Yossi Sheffi, a professor at the Massachusetts Institute of Technology and director of the MIT Center for Transportation and Logistics. Customers who used TNT's other services could press for lower prices when it came to logistics advice from TNT Logistics, pressure that the spun-off company won't have to deal with.

"In many cases, people who provide something tangible, even though they have a lot of intellectual property, they couldn't charge for it," Sheffi said. "When you go out and sell trucking services, [customers] expect you to throw in management of those services."

The acquisition might also fit into the other purchases Apollo has recently made, letting the new owner combine work done by disparate businesses and leverage the huge amount of technology TNT has invested in over the years. "It could be part of a strategy," the MIT professor said. "Big is good in this business mainly because of technology. From the business point of view, success will really depend on execution."



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This is a showcase of the work done by Timothy J. Gibbons during a journalism career now stretching back more than a decade.

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