Dutch-based European firm rejected intial takeover offer of $6.43 billion

NEW YORK - United Parcel Service Inc (UPS) is pressing ahead with talks to buy TNT Express NV after Europe's second-largest package-delivery company rejected a $6.43 billion takeover offer.

The "highly conditional" bid of 9 euros ($11.3) a share, 42 percent more than Friday's closing price in Amsterdam, was turned down by TNT's supervisory and executive boards of the company, based in Hoofddorp in the Netherlands. UPS confirmed that discussions were continuing.

"This is a low enough offer that UPS could write a check for it in a heartbeat," said Kevin Sterling, a BB&T Capital Markets analyst in Richmond, Virginia. "The euro keeps weakening and TNT's position keeps weakening, so TNT isn't exactly negotiating from a position of strength here."

Acquiring TNT would extend the European reach of Atlanta-based UPS, which is already the world's largest package-delivery company. TNT was spun off from Dutch postal operator TNT NV in May. The former parent, now named PostNL NV, retains 29.9 percent of the company, according to data compiled by Bloomberg.

The UPS bid valued TNT at 1.04 times total assets, compared with a median multiple of 0.58 in 33 acquisitions of transportation services companies in western Europe over the past 10 years, Bloomberg analysis shows. The 42 percent premium compares with an average of 15 percent in more than 270 deals in the same period.

A bid by UPS or FedEx Corp has been the subject of speculation for years as the the United States companies study expansion in Europe, and TNT's American depositary receipts jumped 55 percent, the most since the spinoff, to $12.57 on Friday in New York.

UPS was unchanged at $76.76, while FedEx, the operator of the world's largest cargo airline and No 2 in package deliveries behind UPS, slid 2.1 percent to $92.99. TNT rose 2.6 percent to 6.34 euros on Friday in Amsterdam, before the talks were disclosed.

The announcement of the offer to TNT and ongoing talks about a deal spurred Standard & Poor's to put UPS, including the company's AA- corporate rating, on "Creditwatch" for a possible downgrade.

'We believe the transaction would strengthen UPS's market position, especially in Europe," S&P said in a statement. "However, we believe that UPS' credit metrics have limited room for deterioration at the current rating."

For TNT, UPS' offer reflects the European company's undervaluation after the spinoff, creating an opening for "one of the most opportunistic bids of the decade", said James Rasteh, president of New York-based White Eagle Partners LLC, which he said holds a TNT stake of less than 1 percent.

"This merger would put UPS in an undisputed leadership position in Europe, China, Russia, Brazil and India - all of which have higher structural growth potential than North America," he said.

Spokesmen for PostNL, TNT's largest investor, and Jana Partners, the third-largest, declined to comment.

TNT posted a net loss of 97 million euros for the first nine months of 2011 compared with a profit of 62 million euros a year earlier. TNT is in the midst of a 50 million-euro program to reduce "indirect costs" and plans to report full-year earnings on Feb 21.

The company cut its 2011 target operating margin for Europe, the Middle East and Africa to 8 percent to 9 percent in October from an earlier target of 9 percent or more. UPS hasn't posted an annual loss since going public in 1999 and ended the third quarter with $4.13 billion in cash and near-cash items.

Bloomberg New