XPO Logistics to buy Con-Way, Inc.
On September 9th, XPO Logistics, a company offering supply chain solutions, made the announcement that they would be buying Con-Way Inc, America’s second biggest less-than-truckload-service company, for close to $3 billion dollars. This latest acquisition is one of several XPO has sought out recently, the most recent having taking place in June with the over $3 billion dollar purchase of Norbert Dentressangle SA, a French company offering supply chain services in over 27 countries.
The addition of Con-Way and will make them one of the nations largest freight transportation and logistics providers as well as a major global player. Their annual revenue is now expected to reach $15 billion, which is over six times their reported revenue in 2014 of $2.4 billion. The arrangement will be XPO’s first leap into the US trucking sector, altering the company from a shipper and carrier middleman to a business now gaining one-third of its income from its truck fleet.
The $2.72 billion dollar deal with Con-way is the last expected major purchase by XPO, though the company doesn’t want to rule out potential smaller purchases in the near future. In 2011, the private-equity firm of Brad Jacobs, now the Chief Executive of XPO invested $135 million in the company. Since then, XPO has made at least 14 acquisitions and set their sights on a revenue of $23 billion for the 2019 year. Under his leadership, the company has seen a 40-fold increase in annual revenue.
Jacobs said “By having at least a minority component of assets in the business mix, we…get a bigger seat at the table with customers.” Jacobs believes that operating their own fleet will let them cash in on bigger contracts with shippers. Having Con-way will give them a foot in the door since they already work directly with shippers, placing goods from multiple companies on one truck to maximize efficiency. “This transaction was about how do we offer something to customers that’s different than anyone else,” Jacobs said. “This completes our package to them. This makes us more valuable to our customers.”
After the announcement, shares of XPO Logistics took a 13% dive while Con-Way’s rose 34%, which seems to indicate not all shareholders are excited about the merger. Con-way has had a rough year thus far, with it’s stock down 28% and reporting only $2.8 billion in income for the first half of the year, which is a little less than the same period in 2014. Analysts believe that their overall success is being brought down by their logistics and full-truckload units. These account for about 40% of total revenue.
But XPO is ready to tackle the deficit. According to Jacobs, XPO is prepared to roll out a saving plan within the first year of the deal closing by combining the company’s brokerage businesses. Following that roll out, the new XPO will then work on cutting costs on purchased transportation and also give its freight
management business a boost from utilizing a bigger data flow from the two combined companies.
One big change for Con-way… no management from the company will be moving over to XPO, though for the first few months Chief Executive Douglas Stotlar will work in as an advisor for XPO. The deal is expected to close in October.