Deutsche Post to get warning over merger

Date: 01/07/1999

By Tim Jones

GERMANY'S embattled post office is likely to win regulatory clearance next week for the latest scalp in a long line of foreign acquisitions - but with a warning attached, according to official and industry sources.

If Deutsche Post is successful in its acrimonious €380-million battle for Swedish transport company ASG, the European Commission looks set to demand that the German giant clearly separates its accounts between post, express parcels and freight/logistics.

"This would be in line with the DHL decision." said an official. The Commission cleared DP's purchase of a 25% stake in international courier service DHL after the post office agreed to break down results from its letter and parcel operations to make any 'cross-subsidies' transparent.

Officials say the ASG take-over is unlikely to cause straightforward anti-trust worries as the activities of DP and its majority-owned Swiss logistics company Danzas hardly overlap with those of the Swedish firm.

However, Acting Competition Commissioner Karel van Miert wants to keep up the momentum in his running skirmish with DP over the company's predilection for buying private companies abroad while its core business at home is protected.

The German postal operator is engaged in a bitter struggle for control of ASG with its Swedish counterpart Posten. DP, together with Danzas, now holds 76.2% of the ASG capital and 59% of its voting rights while Posten has 19% of share capital and 26.5% of voting rights. The Swedish post office is threatening to block the deal.

Investment company Custos, ASG's largest shareholder, had agreed to sell its 32% stake to Danzas, but this sparked objections from rebel shareholder Bengt Sjoberg.

The fight has spilled over into the letter market, with DP threatening to buy a majority stake in Citymail, Sweden's second-largest postal company, which is in turn 12%-owned by the UK's Royal Mail.

By providing business-to-business letter services in the Stockholm, Göteborg and Malmö areas, Citymail is Posten's direct competitor - and a take-over by DP would certainly worry the Commission.

DP withdrew its bid for German parcel delivery firm Trans-o-flex Schnell-Lieferdienst in May after the Commission sent a list of grievances summarising the threats that this operation posed to competition in the express delivery sector.

Atlanta-based express giant United Parcel Service filed a complaint with the Commission in 1994, claiming that DP was abusing its monopoly position in mail delivery to finance its loss-making parcel services.

UPS has spent €1 billion on a pan-European network, mostly by acquiring national operators, and is laying out an extra €700 million to modernise its system.

It feels that DP is undermining this investment with its €4-billion shopping spree.

DP, which says its acquisition programme is only 75% complete, strenuously denies the charge that its parcel divisions are loss-making and points out that they are now generating enough cash to be ploughed back into the businesses.

The German operator also claims that UPS and its rival Federal Express enjoy quasi-monopolies in their markets after successfully lobbying the US authorities to curtail the US Postal Service's activities.

However, Van Miert has decided that there are grounds for investigating DP's activities following a call for action from the US justice department in reaction to UPS' complaint. An EU-US agreement signed last year allows officials on either side of the Atlantic to probe anti-trust issues on each other's behalf.

The Acting Commissioner must decide whether to open formal proceedings against DP before the summer break for 'abuse of a dominant position' in over-charging for carrying mail weighing less than 200 grammes, and using these excess profits to expand in competitive markets.

DP chairman Klaus Zumwinkel claims the acquisitions were financed by real-estate sales, although UPS points out that this property was assigned to the postal operator by the state.