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FedEx Plans to Buy Out Venture Partner in China

The U.S. firm agrees to pay $400million to gain full ownership of a package shipping network in the Asian country.

January 25, 2006|From Associated Press

MEMPHIS, Tenn. — With a $400-million agreement to buy out its partner in a Chinese joint venture, FedEx Corp. is poised to take over a package shipping network in China and boost its presence throughout Asia.

FedEx announced plans Tuesday to take full control of a joint venture begun in 1999 with Tianjin Datian W. Group.

The joint venture handles international package shipments to and from China. FedEx's partner, which goes by the name DTW Group, operates a domestic delivery network with 89 locations in cities across China.

After the acquisition, FedEx, which does not handle shipments within China, would own DTW's domestic network.

Memphis-based FedEx said it hoped to complete the acquisition during its 2007 fiscal year, which begins June 1. The operation would become part of FedEx Express, the company's cargo airline division.

"For the short-term, the only thing it changes is the amount of ownership," said Morgan Keegan analyst Arthur Hatfield. "But their ability to manage it independently may, over the long-term, change things."

After the acquisition, FedEx would have "an express domestic service branded FedEx, owned by FedEx and operated by FedEx," company spokesman Jess Bunn said.

More than 6,000 employees would work for both the international shipping service and the domestic service.

Most FedEx shipments within China are business-to-business and "the overwhelming majority of express delivery packages" are shipped to or from the locations now covered by the joint venture network, Bunn said.

How that network will develop under FedEx's sole direction has not been determined.

"I'm not going to say we would never deliver to a home in China, but generally speaking it's a business-to-business overnight service or international priority service," Bunn said. "We will be evaluating the market and evaluating our customers' needs and then determine what the domestic market will be."

Shares of FedEx rose 96 cents, or 1%, to $101.22 on Tuesday.

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