FedEx stocks are in the spotlight with the US-listed delivery company first to take advantage of the ECB’s recent QE expansion, having just announced plans to market Euro-denominated bonds – jumping on the lowest borrowing costs in almost a year for overseas issuers.

FedEx (FDX) is said to be eyeing the issuance in order to raise capital for its acquisition of Dutch peer TNT Express (TNT), according to a source familiar with the matter. This sort of thing is at the extreme end of exactly what Mario Draghi wanted when he announced the ECB’s plan to not only increase its monthly bond purchases, but extend the pool of targets to include corporate bonds.

Thank god he’s got it this time. If prior attempts to weaken the Euro and stave off would be haven-hunters are anything to go by, one might have expected corporations to likewise do exactly the opposite, for the same reason (that being, er, no good reason!)

But no, here we are looking at a big, listed company coming over here, borrowing all the ECB’s Euros so that it can invest and grow. This is reassuring and has us believe once more that markets do indeed play by the rules of boring, old fashioned economics. At least sometimes.

FedEx is currently packaged up on the ‘nothing particularly special’ shelf when compared to its sector peers. P/E-wise, it does trade at a discount to the sector average but it’s not as cheap as Deutsche Post (DPW).  Another thing to consider is the obvious: It’s borrowing money to fund a takeover bid, which is risky. That has implications for FedEx stocks in that the US Company is the predator. It’s intending to spend a great deal of money to acquire a competitor, which carries risk.

On the flip side, shares in TNT Express should be trading at a discount to that at which the merged company will trade due to the risk that the transaction will not go through. This, combined with the fact that shares in the prey will usually move by a larger amount than will those in the predator, makes it a better call to concentrate on the prey – in this case TNT. What I’ve described above is part of a strategy known as Merger Arbitrage, a well-known strategy often employed by Hedge Funds, whereby the investor only buys and sells stocks that are involved in mergers.

Talk of mergers can affect the wider market too – even companies that aren’t known to be involved. If you were to look back over the past 12-months at the pharmaceuticals sector, you’ll notice a great deal of hype caused by M&A chatter and a great deal of share price movement to boot.

OK, so the parcel delivery sector isn’t quite as sexy, but the same thing may well happen there, especially with a number of smaller, nimbler delivery companies cropping up to challenge the incumbent national carriers. There may be no option but for some of the bigger players to go shopping – if only to maintain their market share – and given the ECB’s willingness to add corporate bonds to its inventory, this could start happening very soon.

Augustin Eden, Research Analyst