Mergers, acquisitions change logistics landscape

By Staff -- Logistics Management, 2/1/2001

The pace of mergers and acquisitions in the logistics marketplace shows no signs of slowing. In just a single week last month, several major deals affecting the freight-forwarding, third-party logistics, and aircargo sectors were announced.

First up was APL Logistics, which announced that it would buy GATX Logistics, one of the top logistics players in North and South America. A few days later, United Parcel Service said that it would buy one of the world's largest freight-forwarding companies and an international bank. At the same time, American Airlines announced its offer to purchase Trans World Airlines' assets, only to face a later challenge from competitors that want to buy all or part of TWA themselves. Here's a closer look at each of these announcements:

APL Logistics/GATX Logistics. "There's no such thing as a global 3PL [third-party logistics provider]," believes APL Logistics CEO Dick Metzler. But that's not stopping his company from trying to become one. To help make that concept a reality, APL Logistics of Oakland, Calif., is purchasing GATX Logistics of Jacksonville, Fla., one of the top logistics players in North and South America, for $210 million.

Metzler says the acquisition makes APL Logistics "absolutely the best Asia-to-America supply chain solution" because it marries his company's capabilities in Asia to GATX's distribution and warehousing capabilities in North, Central, and South America. "It means cost-effective, time-definite, end-to-end regional and global supply-chain management for retail, automotive, and other companies [that] source internationally," he says. Although Asia and the Americas are APL Logistics' primary focus right now, the company is unlikely to stop there: Metzler adds that he is eyeing additional, unnamed acquisition targets in Europe.

APL Logistics is the supply chain-management arm of Singapore-based Neptune Orient Lines Group, a global transportation and logistics business. APL Logistics consolidates merchandise into containers for export to distribution centers or retail stores and manages the movement of products, documentation, and information for its customers. GATX Logistics operates 21 million square feet of warehousing in the Americas, including 93 facilities serving 35 markets and employing 3,000 workers. It will make the transition to the APL Logistics brand name over the next six months.

Financial details of the deal were not disclosed, but the acquisition will increase APL Logistics' annual revenues by 70 percent to an estimated $750 million, according to Metzler. Joseph Nicosia, outgoing CEO at GATX Logistics, says he will stay on in an advisory role.

United Parcel Service/Fritz Cos. Atlanta-based UPS plans to acquire Fritz Cos. Inc., one of the world's largest freight forwarders and customs brokers, for $450 million in UPS Class B common stock. Fritz, based in San Francisco, has 400 facilities in 120 countries and more than 10,000 employees.

The move signals that the world's largest package-delivery company is expanding its freight-forwarding services to compete against Federal Express, Deutsche Post World Net (owner of the German post office and majority stockholder in DHL Worldwide Express), and Danzas AEI, the world's largest airfreight forwarder. "We want to be able to handle any kind of goods, anywhere in the world, at any time, by any mode," says Norman Black, UPS spokesman. "It could be a package. It could be a 10,000-pound generator. We want to move it." Transportation analyst Ed Wolfe of Bear Stearns, noting that the deal brings UPS international customs brokerage, air and ocean forwarding, and warehouse/distribution capabilities, terms the acquisition "on target."

Black says UPS expects to complete the transaction during the second quarter and that Fritz Cos. will continue to operate under its own name as a UPS company.

In another deal last month, UPS announced that it would acquire First International Bancorp of Hartford, Conn., parent company of First International Bank, for $78 million in UPS Class B common stock. The agreement will bring First International's global fund-moving capability to UPS, says UPS spokeswoman Peggy Gardner. "It's certainly about building our global footprint," she says. "Cash is king [in global business]. If you can speed up the flow of funds, then you help customers extract more value out of the supply chain."

First International offers loans of up to $10 million to small and medium-sized manufacturers, distributors, and wholesalers in the United States and emerging international markets. It has 200 employees here and abroad.

American, Northwest, and Continental/TWA. AMR Corp., parent of American Airlines (AA) of Dallas, has offered about $500 million for most of Trans World Airlines Inc.'s assets. If approved, the deal would mark the end of 75-year-old TWA, which has filed for Chapter 11 bankruptcy protection.

But rivals Continental Airlines and Northwest Airlines are challenging the sale, saying they could offer more attractive deals that could bring TWA out of bankruptcy. In separate filings in federal bankruptcy court in Wilmington, Del., Northwest, the fourth-largest U.S. airline, and Continental, the fifth-largest, said TWA's assets should be put up for bid. Financier Carl Icahn, former TWA chairman and one of the airline's major creditors, has gone on record as opposing American's offer.

American, the country's second-largest airline, has offered to assume most of TWA's aircraft leases and provide $200 million in financing. AA also wants to acquire TWA's gates and take-off and landing slots at several airports. American will offer jobs to most of TWA's 20,000 employees, but it is unclear how TWA pilots would be integrated into the operation.

TWA, the nation's eighth-largest carrier, hasn't turned a profit since 1988 and has filed for bankruptcy twice before. The St. Louis-based carrier lost $115.1 million in the first three quarters of 2000 and lost $353 million in 1999.

American's offer to buy TWA is entangled with a plan by Chicago-based UAL Corp., parent company of the largest U.S. carrier, United Airlines, to buy USAirways for $4.3 billion. In order to avoid antitrust charges, UAL proposes to sell American 20 percent of USAirways' assets for $1.2 billion in cash and the takeover of $300 million in aircraft leases. The transactions, if they pass U.S. Justice Department scrutiny, would leave American and United in control of about half of the nation's air-travel market, with each airline garnering roughly 25 percent of the market.