XPO Logistics, Inc. and Con-way Inc. have entered into a definitive agreement for XPO Logistics to acquire Con-way. The total transaction value is approximately $3bn, including $290m of net debt.
The transaction will enhance XPO's range of supply chain solutions by making XPO the second-largest less-than-truckload (LTL) provider in North America, and will expand the company's global contract logistics platform.
XPO will also capitalise on synergies from the combination with Con-way's managed transportation, truckload and freight brokerage businesses.
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.
All of the acquired operations - Con-way Freight, Menlo Logistics, Con-way Truckload and Con-way Multimodal - will be rebranded as XPO Logistics.
Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said: "Our opportunistic acquisition of Con-way will make XPO the second-largest provider of less-than-truckload transportation in North America, a $35bn 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."
XPO's global contract logistics platform will expand by 22m sq ft to a total of 151m sq ft, 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.
XPO Logistics’ US$3bn acquisition of Con-way is good news for customers and stakeholders of both companies, reports our sister publications Lloyd’s Loading List.com.
It unlocks value in “underperforming” Con-way and turns XPO into the world’s second-largest contract logistics provider, industry analysts believe.
Transport and logistics investment analyst Stifel said its ‘Buy’ rating for Con-way this year prior to the acquisition announcement had been based on the belief that Con-way had three businesses underperforming their potential. “And although current management was relatively clueless as to how to unlock any value – refusing to divest or spin-off divisions or make appropriate management changes – we thought either they had to get a clue or something had to change.”
Stifel analyst John Larkin said: “Fortunately for shareholders, XPO is making that change. We believe this is a good deal for Con-way shareholders, employees, and customers. It also should be a good addition to the growing XPO Logistics portfolio of transportation and logistics services, in our view.”
He expected the deal would clear any regulatory hurdles and the $47.60 offer price would be accepted by CNW shareholders, “as it represents a nice premium over the recent trading price and is above our 12-month target price of $45”.
“We expect to deal to go through (October closing anticipated), as there are no significant anti-competition hurdles to clear, and the deal is not contingent on financing,” said Larkin. “We then anticipate XPO to unlock value in Con-way via management changes. Already, it has been announced that Con-way CEO Doug Stotlar will remain on only in an advisory/non-executive capacity through a transition period.”
He said Con-way’s Menlo Logistics business fits best with XPO’s existing suite of services, expanding its global contract logistics footprint and bringing total warehouse space under management to 151m sq ft (14m sq m), “as XPO is now squarely number two globally behind DHL Supply Chain in the contract logistics market”.
Stifel said the Con-way Freight business – one of the largest LTL (less-than-truckload) carriers in North America – had “the most significant upside to EBIT, in our view, of the businesses to be acquired. The company used to be one of the profit leaders in the LTL space, but has lost its way over the past 10 years,” Stifel said.
It described Con-way Truckload as “the underperforming asset-based truckload operation, with a strong position in the US/Mexico market, and should be a nice complement for XPO’s other NAFTA service offerings, in our opinion”.
Stifel noted that XPO management was targeting $170m-$210m of operating profit improvement from synergies and other changes to Con-way, “much more improvement, we believe, than would have been seen under current Con-way management, which is why we believe the transaction is a win for both CNW shareholders and XPO shareholders”.
John Manners-Bell, chief executive of logistics consultancy Transport Intelligence (Ti), commented: “XPO has now confirmed itself in the ‘Major League’ of global logistics providers. At the beginning of the year we predicted that 2015 would see a tidal wave of acquisitions, and so it has been proved. The industry was ripe for more consolidation as a raft of supply and demand-side trends have aligned. We don’t expect this will be the last major acquisition this year, as logistics providers based in Asia, Europe and North America seek to fulfil their global ambitions.”
Ti analyst David Buckby added: “Given the scale of Con-way, a company which is expected to record revenues of around $5.7bn for 2015, it is unsurprising that XPO’s acquisition of the company will dramatically alter its position in a number of transport and logistics markets. Most obviously, as stated in a company press release, XPO will become the second-largest provider of less-than-truckload (LTL) services in North America.”
Buckby said Con-way’s Freight (LTL) division had revenues of US$3.6bn in 2014, placing it behind FedEx’s market-leading LTL division (FedEx Freight), which had revenues of $6.2bn for its latest fiscal year, which ended 31st May, 2015. “Rivals such as YRC (revenue over $3bn), in addition to Old Dominion and UPS (both over $2bn) are Con-way’s nearest LTL competitors ranked behind it,” he added.
“It is worth noting that XPO will also acquire a significant full-truckload (FTL) business in North America. Con-way’s Truckload division had revenues of $632m in 2014, placing it definitively outside the top 10 players by revenue, but firmly in the top 25.”
Buckby said the final piece of the jigsaw is Con-way’s contract logistics division, Menlo, which generated revenues of $1.64bn in 2014. “Although the division’s primary market is the US, it also operates facilities in Europe (the UK, Ireland, Netherlands, Belgium, Germany, Czech Republic, Hungary and Finland), Latin America (Mexico, Peru and Chile) and Asia (China and India most significantly, but also Hong Kong, Taiwan, Thailand, Malaysia, Singapore and Australia),” Buckby observed.
“Putting this in perspective, Menlo’s contract logistics revenues in the US and Canada (almost all US) amount to approximately 80% of the division’s revenues, with the rest of the world accounting for about 20%.”
But he added: “Menlo’s presence in Asia, although relatively small, will now permit XPO to call itself a truly global contract logistics provider. Prior to this acquisition, XPO only offered contract logistics in Europe (through its purchase of Norbert Dentressangle, first announced in April 2015) and North America (through its purchase firstly of New Breed Logistics in July 2014, and later its acquisition of Norbert Dentressangle, which itself acquired Jacobson in July 2014).
“It will be interesting to see if XPO makes further acquisitions in future to ‘firm up’ its contract logistics presence in Asia, resembling its strong positions elsewhere.”
Concluding, Buckby commented: “So overall, where does the acquisition leave XPO in the global contract logistics market? Still far behind the market leader, DHL Supply Chain, which reported revenues of €13.2bn in 2014. However, by the end of 2015, barring any major acquisitions by its rivals, XPO will sit firmly in second place.
“It will be some distance ahead of the likes of other global players such as Kuehne + Nagel and CEVA (contract logistics revenues of over €3bn), as well as UPS and DB Schenker Logistics (contract logistics revenues of over €2bn).”