Con-Way's Menlo Logistics is 'Crown Jewel' of XPO's Acquisition
XPO Logistics Inc. announced it has agreed to buy Con-way Inc. for $3 billion to broaden its supply chain offerings into less-than-truckload and U.S. truckload freight and create a company with annual revenue of $15 billion.
Brad Jacobs, CEO of XPO, told Transport Topics that 鈥渢he acquisition will make our platform more powerful and flexible鈥 by offering a broader array of services.
The purchase of the company that ranks No. 4 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers is being made at a premium of about 30% to the most recent closing price of Con-way shares.
Jacobs said that the move, which follows just three months after his company expanded into Europe by purchasing France鈥檚 Norbert Dentressangle, will create a business with about one-third of its revenue from LTL and other asset-based freight and the rest from non-asset offerings.
The Year of XPO
FEBRUARY: Acquires UX Specialized Logistics for $59 million
APRIL: Agrees to buy French logistics operator Norbert Dentressangle SA for $3.5 billion
MAY: Agrees to buy Bridge Terminal Transport for $100 million
SEPTEMBER: Agrees to acquire Con-way Inc. for $3 billion
He termed Con-way鈥檚 Menlo Logistics unit a 鈥渃rown jewel鈥 of Con-way, which matches up favorably with his company鈥檚 current offerings.
LTL accounts for about 60% of Con-way鈥檚 2014 revenue, with 30% from logistics and the balance from truckload. Annual revenue totaled $5.8 billion.
By comparison, fast-growing XPO, which is based in Greenwich, Connecticut, built itself into a $9 billion annual revenue company through a series of acquisitions, most recently Norbert Dentressangle. Most of that growth has been achieved in the past 12 months, since XPO鈥檚 revenue last year was $2.35 billion.
XPO鈥檚 top executive believes there is a 鈥渃oncrete opportunity鈥 to boost Con-way鈥檚 profit before interest and taxes by as much as $210 million after two years by infusing technology, new sales opportunities and saving on costs such as maintenance. That represents an increase of nearly 80% based on 2014 performance.
In recent years, Con-way鈥檚 operating ratio improvement has trailed competitors.
鈥淲e will run the LTL business with a fresh set of eyes,鈥 he said as a 鈥渘on-commoditized, high value-added business.鈥
Jacobs, who announced the Con-way deal almost exactly four years after entering transportation by purchasing a $177 million company, told TT that he believes the 鈥渨inners and losers鈥 in LTL will be separated by having a combination of market scale and technology.
The announced purchase price was $47.60 per share.
The sale price includes about $290 million in Con-way debt.
VIDEO: TT's April interview with Brad Jacobs:
With the expected addition of about $525 billion in earnings before interest, taxes, depreciation and amortization, XPO now will generate $1.1 billion in EBITDA, he said.
The purchase price was 5.7 times last year鈥檚 EBITDA, based on XPO鈥檚 calculation.
Con-way, whose corporate ancestors stretch back for decades, will be rebranded as XPO Logistics, the buyer鈥檚 announcement said.
Jacobs told TT the company will launch a tender offer for Con-way shares this week, with the intent of completing the deal next month.
Within LTL, he said there are opportunities to handle smaller freight, such as e-commerce deliveries. An additional benefit could be more manufacturing freight as production increases closer to the U.S. through 鈥渘earshoring.鈥
Another advantage of entering LTL and truckload,听Jacobs noted, was the creation of what听he termed 鈥渟treet cred鈥 with some large shippers who have been reluctant to use third-party logistics operators.
In the truckload sector, he emphasized cross-border opportunities for U.S.-Mexico freight.
A final advantage he noted in an interview with TT was the fact that over the long term, capacity is expected to get tighter, along the lines of what happened last year.
鈥淐ontrolling capacity in that scenario will be extremely beneficial to customers,鈥 Jacobs said.
In the Menlo portion of Con-way, the complementary businesses include contract logistics, transportation management and brokerage.
Jacobs also said the acquisition will be financed with $2 billion arranged through Morgan Stanley, as well as cash on hand and an asset-backed loan facility.
There are no financing-related conditions, he said.