Although the acquisition had been expected to easily pass a Federal Trade Commission (FTC) antitrust regulatory review, Morningstar has reported that New York-based firm Faruqi & Faruqi is investigating Con-Way’s board over alleged violation of fiduciary duties for selling the company at the $47.60 share price, that number is down from the stock’s 52-week high of $59.00. It remains to be seen if the inquiry will halt the deal’s approval. XPO expects the purchase to be completed by October.
Acquisition-hungry XPO Logistics announced on Wednesday that it has agreed to purchase Ann Arbor, Michigan-based Con-Way Inc. for $3 billion in an all-cash deal. Con-Way is the nation’s second-largest provider of less-than-truckload (LTL) freight, in which freight from multiple companies, usually retailers, is shipped on the same truck. XPO will purchase Con-Way at a share price of $47.60, well above Con-Way’s Wednesday closing price of $35.53. The deal becomes a centerpiece of XPO’s frenzied array of purchases, having completed 14 mergers and acquisitions since CEO Brad Jacobs took over in 2011. XPO’s 2015 projected revenue is $6.7 billion, which would be over 40 times what the company earned in 2010. Although the acquisition had been expected to easily pass a Federal Trade Commission (FTC) antitrust regulatory review, Morningstar has reported that New York-based firm Faruqi & Faruqi is investigating Con-Way’s board over alleged violation of fiduciary duties for selling the company at the $47.60 share price, that number is down from the stock’s 52-week high of $59.00. It remains to be seen if the inquiry will halt the deal’s approval. XPO expects the purchase to be completed by October.
For its part, Con-Way has had a rough year, with its stock price dropping 28 percent in 2015 amid poor earnings reports, earning $2.8 billion in revenue so far this year. This comes even as the LTL market has been humming along. Despite the poor financial performance, Jacob’s praised the relationship between Con-Way management and its workers, saying “Con-way has good relations with its drivers. Turnover is in the low single digits within LTL and 55% in its TL division They pay very well, there is a cultural emphasis on safety, and they hold to a ‘driver first’ philosophy, and we’re going to build on that.” Jacobs noted that Con-Way is not a “fixer-upper,” adding that “They have very satisfied customers. We just want to improve the efficiency and profitability of the business.” He also said that XPO would continue Con-Way’s anti-union stance, saying “We believe very firmly that employees and drivers are better off without a union with ulterior motives getting between them and management.” Despite offering praise to the company, XPO announced that it will not retain Con-Way’s board members, although CEO Douglas Stotlar will remain on the board in an advisory role on a temporary basis.
XPO Logistics, based in Greenwich, Connecticut, has been primarily a middleman in the transport industry. Jacobs, who strongly believes there will be a capacity shortage in the near future, said in a conference call with analysts and reporters, “There is no doubt about it in my mind, though it is up for debate when it occurs,” he noted. “But when it does, he who controls assets will do very well.” The Con-Way purchase, along with the $3.5 billion purchase of French trucking company Norbert Dentressangle SA in June, gives XPO an instant foothold in the trucking market. The deals will lead to XPO earning more than a third of its revenue through “asset-heavy operations,” as well as increase its flexibility, a major asset in the LTL market. Among the efficiencies cited by Jacobs will be to combine the freight-brokerage operations of the two companies, a move that he hopes to complete by the end of this year. Desiring to become a “one stop shop,” Jacobs said in the conference call, Jacobs said “we will be a flexible, adaptable, and opportunistic company. We will skate to where puck is going, not where it is, looking at where the trends going and embrace strategies to adapt to them.”
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