At last, things are making sense. At last, CEOs in this country are realizing how lucky they might be because of the strong dollar, and they are taking action to profit from the moment.
Yes, today we got a graphic example of what can happen when a U.S. executive thinks big. That's just what FedEx (FDX) CEO Fred Smith did today with his company's agreement to acquire for $4.8 billion TNT Express (TNTEY), a Dutch freight-forwarding company that has a huge share of business in Europe.
This transformative deal encapsulates all of the good happening right now that's neither celebrated nor even talked about.
First, Smith is getting TNT for a fraction of what rival United Parcel Service (UPS) tried to pay for TNT just two years ago. European regulators blocked UPS's $7 billion takeover because they saw a lot of overlap, and, therefore, a lot of firings and less competition. There's no such overlap here as most of this is virgin territory. Plus, Smith told me when I interviewed him this morning that he expected that more jobs would be created, not initially, but eventually, as he expanded his company's reach throughout Europe.
Second, unlike UPS, which would have had to absorb hefty losses as it was buying TNT right into the beginning of a true European swan dive, FedEx is getting TNT just when Europe is on an upswing. It's almost as if it is perfectly timed with the beginning of a European renaissance that's begun because of an aggressive monetary policy meant to reignite the economy and a dramatic decline in energy costs which is truly starting to help Europe.
The decline in energy prices is terrific for FedEx, and I think this move signals that the freight company recognizes that it has to strike when it has huge cash flow from lower fuel prices. Now, I don't believe that oil's going back to where it was, but the combination of lower fuel being great for the bottom line of FedEx and fabulous for Europe is a huge driver of the deal.
Third, Smith may not be calling an exact top in the dollar with this move, but it's safe to say that if he thought the euro was going to tumble from here, he wouldn't be doing this deal now. It's not like UPS is going to step in if he doesn't. Smith, the economist and businessman, is saying, hey, the dollar's not going to stay this strong, and so it's not worth taking any chances on a return of a stronger euro that will make this deal less advantageous. Think about how bullish it is for Europe and for the euro that a man who makes his living sending packages back and forth overseas wants to do a deal right now.
Now, it is true that we have seen other deals, most notably, the Ball Corp. (BLL). tie-up with Rexam (REXMY), the beverage-can maker. But that's a British company. FedEx is making a move on the euro, a currency that the world seems to be short. Smith is taking the other side of the trade, and I wonder if the deal won't change people's minds about the etched-in-stone mind-set about a weak euro.
Typically, I wouldn't put all that emphasis on what an individual CEO is doing and how he is spending his money. But Fred's no ordinary CEO, and as I say in Get Rich Carefully, he is, in many ways, the most important CEO when it comes to worldwide commerce, and so, yes, this is that big a deal.
What are the implications if he is right? First, you have to wonder whether we don't have to redo assumptions about the weakness in Europe. Sure, the euro may not come back hard, but perhaps more important is that there could be more business being done in Europe in the future. Remember FedEx isn't an ordinary company. It is levered to the pace of the economy and to the amount of volume the area might be generating. If Smith thinks things are going better, he's making a judgment on shipments, and more shipments means more orders. In other words, it's not idle. That means even if the dollar remains strong, at least companies might be able to make it up in volume. That's terrific for technology companies that do a ton if business in Europe which could explain a lot of the strength they are seeing today.
We also have to consider that FedEx doesn't see any sort of slowdown in the United States. Who would make such a gigantic acquisition if FedEx were as worried as the stock market is about a slowdown. In other words, it wouldn't surprise me if the quarter's not a good one here, too.
Now, let's circle back to the original concept, about business making sense. Almost all investors have presumed that there is no upside at all to a strong dollar. Have you heard anything good to say about it other than my friend Jim Stewart's article in the New York Times about how Italian suits have come down in price for Americans and a couple of hotels might be bargains? Other than that excellent piece, I can't think of a single word that's even whispered about how there could be something positive about the greenback being as strong as it is. How about, though, if it means that our companies can be opportunistic about opportunities overseas? We all view things so statically as if our companies can do nothing but endure a beat down going into earnings. Yet, can you imagine if other companies would start taking advantage of this dollar? Before the great recession, many of our companies purchased sizable businesses in Europe that turned out to be poorly timed both from a currency and an economic standpoint. One look at the price FedEx had to pay coming out of a recession versus UPS going into one is pretty stark, and there's plenty that's good for sale now.
Either way, the fact is that we have data point after data point now that Europe's coming back. There are 770 million people in Europe. It was a tremendous market at one point. All talk about this being a lost decade for Europe seems a little shallow, at least for now. Can companies not afford to take action?
Okay, the usual caveats. FedEx is only one company even if that company's run by the foremost economists among all CEOs. The data out of Europe are strong now, but they could be inconsistent like ours are. FedEx could be wrong. But let's face it, even if it is wrong, it is a lot less wrong than UPS was.
This FedEx transaction is no ordinary one-off deal. It is more likely the beginning of a trend as dozens of other CEOs have simply been waiting on the sidelines for an all-clear signal. That's what they got today, a signal, a benchmark, someone who isn't motivated by inversions, but by profit. The deal opens the doors for everyone else to make a move, especially when you see the eye-popping gain FedEx gave you today for taking this bold action.
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