Thursday, September 10, 2015

Another Huge Acquisition of Freight and Road Haulage Outfit by US Logistics Group

XPO Just Keeps on Buying
Shipping News Feature

US – Freight brokerage firm XPO Logistics has entered into a definitive agreement to acquire American road haulage giant Con-way and its subsidiaries for approximately $3 billion a deal coming just three months after the Greenwich, Connecticut headquartered group formally acquired French haulage and logistics group Norbert Dentressangle. Just like the acquisition of Dentressangle, all of the operations under the current Con-way brand - Con-way Freight, Menlo Logistics, Con-way Truckload and Con-way Multimodal - will be rebranded as XPO Logistics.

Headquartered in Ann Arbor, Michigan, Con-way is a Fortune 500 company with a transportation and logistics network of 582 locations and approximately 30,000 employees serving over 36,000 customers. For the full year 2015, consensus analysts' estimates for Con-way are $5.7 billion of revenue and $528 million of adjusted EBITDA. The transaction is expected to be substantially accretive to XPO's earnings in the first 12 months.

XPO hopes that the transaction will enhance its range of supply chain solutions by making XPO the second largest less-than-truckload (LTL) provider in North America, and expand the company's global contract logistics platform. XPO will also aim to capitalise from the combination with Con-way's managed transportation, truckload and freight brokerage businesses.

Under the terms of the agreement, XPO will launch a tender offer for all of Con-way's outstanding shares at a cash price of $47.60 per share. Following the tender offer, if successful, Con-way will merge with a subsidiary of XPO, becoming a wholly owned subsidiary of XPO, and all remaining outstanding shares of Con-way will receive the same consideration paid to stockholders who participated in the tender offer.

The total transaction value is approximately $3 billion, including $290 million of net debt. The transaction value represents a multiple of approximately 5.7 times Con-way's 2015 consensus EBITDA of $528 million. The per-share cash price represents a premium of approximately 31.6% compared to the closing price of Con-way common stock on September 8, 2015, and a premium of 22.9% compared to the average closing price over the trailing 90 trading days as of September 8, 2015.

Bradley Jacobs, Chairman and Chief Executive of XPO Logistics, will retain these positions and lead the combined company. Douglas Stotlar, Con-way's President and Chief Executive Officer, will serve in a limited role as an independent advisor to the combined company through the first quarter of 2016. Speaking of the acquisition proposal, XPO’s Bradley Jacobs, said:

"Our opportunistic acquisition of Con-way will make XPO the second largest provider of less-than-truckload transportation in North America, a $35 billion market. LTL is a non-commoditised, high-value-add business that's used by nearly all of our customers. Con-way is a premier platform that we will run with a fresh set of eyes as part of our broader offering. Importantly, we'll gain strategic ownership of assets that will benefit our company and our customers during periods of tight capacity.

"Another crown jewel in this transaction is Con-way's subsidiary, Menlo Logistics, an asset-light top 30 global contract logistics provider with additional lines of business in freight brokerage and managed transportation. Menlo serves blue chip contract logistics customers in verticals such as high tech, healthcare and retail, which complement the verticals we serve at XPO.

"The Con-way transaction will nearly double our pro-forma full year EBITDA to approximately $1.1 billion and increase our revenue to $15 billion upon closing. We'll immediately begin executing our plan to improve the operating profit of the acquired operations by $170 million to $210 million over the next two years. We'll raise our year-end 2015 target run rates for revenue and EBITDA, and issue new long-term targets, when we close."

XPO will remain asset-light with asset-based operations accounting for about a third of sales. The transaction is expected to close in October 2015, following the successful completion of the tender offer and subject to the satisfaction of customary conditions, including regulatory approvals. The boards of directors of XPO and Con-way have unanimously approved the transaction. Douglas Stotlar, President and Chief Executive Officer of Con-way, said:

"This landmark transaction provides immediate cash value for our shareholders and reflects the outstanding contributions of our employees over our 86-year history. The combination will mean more services for our customers, more miles for our drivers, and more career opportunities for our employees as part of XPO's global organisation. We look forward to working with the XPO team to complete the transaction and ensure a smooth transition."

The combination will expand XPO's global contract logistics platform by 22 million square feet, to a total of 151 million square feet, and will add 160 facilities to the footprint. The acquired operations serve blue chip customers in verticals such as high tech, healthcare and retail, complementing XPO's expertise in aerospace, retail, telecom, agriculture, chemicals and food and beverage. The company will have combined scale of approximately 84,000 employees at 1,469 locations in 32 countries.

This week we announced that Hervé Montjotin, formerly CEO of Norbert Dentressangle had left the company with the need to reduce overlapping layers of management with XPO’s global and European COO Troy Cooper given as the reason for his departure. Msieu Montjotin had held the position, where he was also Chairman of the Board, since 2012 before being made President and Chief Executive Officer of XPO Logistics Europe in May this year. Some analysts expressed concern that XPO management would struggle to integrate with subsidiary groups outside the US. Con-way is of course as American as you are likely to get, but this is not strictly true of Menlo which has actively expanded overseas in the past few months.

Troy Cooper and Bradley Jacobs association stretches back over two decades and the two are no strangers to takeover deals. Jacobs’ former business, United Waste was sold off for around $1.7 billion after some hectic buying which saw the company snap up around 200 smaller rivals. Jacobs also founded United Rentals which went on to become one of the major players in the equipment rental market in the US.