XPO officially competes acquisition of Con-way

Following an announcement made on September 9, when it said it planned to acquire Con-way, an Ann Arbor, Mich.-based provider of transportation and logistics services, including its flagship less-than-truckload group Con-way Freight, Con-way Truckload, and its global 3PL unit Menlo Logistics, for $3 billion, non asset-based 3PL XPO Logistics said today the deal has officially been completed.

XPO officials said that this deal makes the company the second largest LTL provider in North America, and also expands its global contract logistics, managed transportation and freight brokerage businesses, as well as add truckload transportation in North America. Each of Con-way’s individual units have officially been rebranded as XPO Logistics.

“We have an unprecedented opportunity to create value for our customers and investors as a result of the Con-way transaction,” said Brad Jacobs, chairman and chief executive officer of XPO Logistics, in a statement. “We’re moving quickly to eliminate redundancies and leverage our scale to better serve our more than 50,000 customers. We’ll issue new financial targets with our third quarter earnings release on November 4.”

Con-way has 582 locations, roughly 30,000 employees, and more than 36,000 customers. Its full-year consensus estimates for 2015 are $5.7 billion in revenue and $528 million in adjusted EBITDA.

“LTL is a $35 billion business, and we look at it as an attractive business,” XPO Jacobs told LM in September. “E-commerce is growing super-fast, and that is pushing out inventories for customers. Scale and technology will separate the winners from the losers, and we at XPO have both size and IT. We believe that requires a pathological sophistication to get to a high level of profitability. And there are an increasing number of online orders that are too big for parcel carriers and don’t require the white glove treatment of last-mile, and this type of freight moves in LTL networks, with LTL also benefitting from continued nearshoring of manufacturing to the U.S. We view LTL as a high value-add business and is used by nearly all of our 16,000 truckload customers in North America, while filling a gap in our service offering.”

And for Con-way’s 36,000 customers, XPO provides them with immediate access to all of XPO’s other services, he said.

Aside from LTL, bringing Con-way’s non asset 3PL Menlo Logistics on board with its three main service offerings-global contract logistics, freight brokerage, and managed logistics-highly similar to the ones presently offered by XPO, with Menlo currently the 15th largest North American contract logistics provider, the seventh largest North American provider of managed transportation with $1.3 billion of freight under management, and $200 million in truck brokerage.

XPO expects to be intermodal benefits from this deal, too, with Jacobs explaining there is a lot of synergy with its intermodal business and the linehaul portion of Con-way’s LTL business, because some of the LTL linehaul can be moved from over the road to intermodal and save shippers money.
This deal also provides benefits in advance of the pending truckload capacity shortage, which many industry stakeholders contend is coming sooner rather than later.

“We agree with the vast industry consensus that the ongoing driver shortage and increasing regulations are contributing to a long-term shortfall in capacity that is unlikely to go away soon,” said Jacobs. “Gaining ownership of capacity is a strategic move by XPO in buying Con-way. We are seizing an opportunity to accelerate that growth in a very big way by buying the second-largest LTL in North America, which will give us a bigger seat at the table. Shippers give the vast majority of their ground freight to companies with assets, and our customers and employees are excited that we are now controlling assets through LTL capacity.”

Not long after the deal was first announced, XPO said it received offers for Con-way Truckload. Jacobs told LM in an e-mail in October that XPO has received some unsolicited inbounds (offers) from interested buyers of Con-way Truckload but has not made any decision whether to keep it or sell it.

“The argument to sell it is it would reduce our debt,” he said. “The argument to keep it is there’s a ton of synergy with our brokerage group. We can significantly reduce the empty miles. The other argument to keep it is we’ve done some town halls with the Con-way truckers and they are an extremely professional and focused group.”

Stifel Nicolaus analyst John Larkin commented in a research note that while many customers like the notion of XPO handling base volumes with its own truckload assets, Con-way Truckload is not viewed as a strategic asset given its industry positioning.

This is the second acquisition of $3 billion or more for XPO in 2015. Earlier this year, it acquired Lyon, France-based 3PL Norbert Dentressangle SA for $3.53 billion.