XPO Logistics to Acquire Trucker Con-way in $3 Billion Deal
Deal would boost XPO’s annual revenue to $15 billion
XPO Logistics said it will acquire trucking company Con-way for $3 billion. PHOTO:CON-WAY INC.
XPO Logistics Inc. said Wednesday it will acquire trucking company Con-way Inc. for $3 billion, capping a run of acquisitions that will make the company one of the largest freight transportation and logistics providers in the U.S.
The acquisition, following the $3.5 billion purchase of French trucker Norbert Dentressangle SA in June, will increase XPO’s annual revenue to $15 billion, more than six times the $2.4 billion revenue reported in 2014, the company said.
The deal also will put XPO directly into the trucking business in the U.S. for the first time, marking the company’s transformation from a company that primarily operated as a middleman between shippers and carriers into a firm that generates roughly one-third of its revenue from its truck fleet and other hard assets. That runs counter to prevailing trends in the logistics sector, where so-called asset-light companies are seen as having an advantage because they can be more flexible in scaling operations to demand and don’t face fixed costs.
The deal amounts to $47.60 a share for Con-way. The company’s shares closed at $35.53 on Wednesday and jumped 33% in after-hours trading, according to FactSet. XPO shares, which had declined about 33% since hitting a 2015 high in late May, are down 2.5% in after-hours trading.
XPO Chief Executive Bradley Jacobs said by operating its own fleet, XPO can chase bigger contracts with shippers, many of which prefer to work directly with carriers. Con-way is the second-largest company in the U.S. offering less-than-truckload service, in which the company handles shipments for many different shippers, often retail stores, on the same truck, according to research firm SJ Consulting Group Inc.
“By having at least a minority component of assets in the business mix, we…get a bigger seat at the table with customers,” Mr. Jacobs said, adding that amassing trucks and other physical assets is “not our base plan.”
XPO has made more than a dozen acquisitions since 2011, and the company has set a target of $23 billion in annual revenue in 2019. The Con-way deal, which XPO expects to close in October, likely marks the last major deal for the logistics company in the short term, Mr. Jacobs said. However, he didn’t rule out smaller purchases in the coming months.
XPO was in talks with Con-way about buying its Menlo Logistics unit a couple of years ago, but the deal fell through for tax reasons, Mr. Jacobs said. After the Norbert acquisition brought XPO a fleet of trucks in Europe, the prospect of buying all of Con-way looked more attractive, he said.
Con-way reported $2.8 billion in revenue for the first half of 2015, slightly less than the company counted in the same period the year before, and its net profit was almost flat at $65.8 million.
Con-way has struggled this year, with its stock down 28% in 2015. The company’s second-quarter earnings came in below analysts’ estimates, despite a strong market for less-than-truckload carriers. Analysts pointed to Con-way’s logistics and full-truckload units, which make up about 40% of revenue combined, as hurting overall results.
“Some kind of a breakup at least needs to be seriously considered by the board of directors,” analysts with Stifel said in July.
Those lines of business make more sense as part of XPO, said Donald Broughton, analyst at Avondale Partners LLC. The acquisition makes the company into a “one-stop shop,” he said. “It fits nicely into the existing franchise of service offerings, kind of like putting a jigsaw puzzle together.”
XPO plans to generate savings by integrating Con-way’s brokerage business with its own in the first year after the deal closes, Mr. Jacobs said. After that, the merged company will reduce spending on purchased transportation and use the larger flow of data to boost its freight management business, he said.
Con-way’s management won’t be joining the combined company, though Chief Executive Douglas Stotlar will remain on board for a few months in an advisory role, Mr. Jacobs said.
