In its biggest acquisition in its 24-year history, Con-way is buying privately held Joplin, Mo.-based Contract Freighters Inc. (CFI), the nation’s 22nd-largest truckload carrier, for $750 million. Analysts and company officials hailed the purchase as a strong move by Con-way to enhance its TL presence.

The addition of CFI to Con-way’s existing $90 million TL division creates a business unit with more than $500 million in annual truckload freight revenue in a combination of two non-union companies. Con-way was CFI’s largest customer, at about $26 million a year, before the purchase, which is expected to close in the third quarter.

“While there are thousands of companies in the truckload sector, CFI is a unique fit,” said Douglas W. Stotlar, Con-way president and CEO. “CFI is not just another truckload carrier.”

Debt-free CFI operates more than 2,600 tractors and 7,000 trailers with more than 2,500 drivers. Current CFI President Herb Schmidt said being part of Con-way “will allow us to penetrate new markets and provide new services” to shippers. Con-way officials did not disclose CFI’s income but called CFI “solidly profitable” and would be “solidly accretive” to Con-way’s earnings by next year.

“We will be a force to be reckoned with,” Schmidt predicted. “The synergies are huge. I am amazed by the level of synergies in this deal.”

Bear Stearns trucking analyst Ed Wolfe called CFI “a well-respected” carrier that generated about $427 million during the past 12 months. Wolfe estimated that Con-way is paying a “healthy premium” for CFI of about 10 times earnings before interest and debt, compared to the historical truckload average of about six times earnings for most TL acquisitions.

Satish Jindel, principal of SJ Consulting who closely tracks the LTL and TL sectors, called it a “good buy” for Con-way. “How good a buy depends on what they can do with it,” he said. “From the purchase price, it seems they didn’t get a steal.”

The Con-way-CFI acquisition confirms the trend of carriers’ leveraging customer relationships by expanding offerings, Jindel said.

“It started with UPS and FedEx when they started bundling express ground into other areas. Now you have other LTL carriers such as Averitt Express and Pitt Ohio buying smaller TL carriers to diversify their offerings,” Jindel said. “What Con-way is looking to do is manage millions of dollars of transport spend. Instead of farming it out, they now can keep it inhouse.”

Stotlar agreed. “We just didn’t have critical mass in truckload,” he said. “Buying this as a platform company gives us that critical mass. It’s about leveraging operations, improving service and lowering the price to the customer. “I’m confident we can offer an end-to-end solution for many customers.”

Con-way now offers nearly every large operations platform that most shippers would need. “I’m very comfortable with the three platforms we have right now – truckload, LTL and Menlo Logistics,” Stotlar said.

Stotlar said the genesis for the deal came in the wake of the boom in West Coast imports when Con-way discovered it lacked capacity to handle shipments out of Long Beach and Los Angeles ports.

“We are trying to leverage the inefficiencies of both companies,” said Stotlar. “It’s first and foremost a growth platform for the company. That just helps justify the margins we think we can generate from this business.”

If CFI had been part of Con-way last year, the combination of Menlo truckload spend and CFI’s revenue would have been about 40 percent of Con-way’s overall revenue of $5.2 billion last year. “We’re often categorized as an LTL company,” Stotlar said. “But we’re going to be much more diversified after this transaction. We know from surveys that customers prefer asset-based service providers.”

CFI currently gets about 40 percent of its revenue from shipments in and out of Mexico. “That business is an appeal but they didn’t buy it just for the Mexican business,” Jindel said. “That’s a good part of their business.”

The companies cited several strategic benefits from the Con-way-CFI combination in addition to expanding TL revenue and operations:
• Retained contract carrier margins. CFI is Con-way Freight’s largest provider of contract services for long-haul transcontinental truckload transportation. The acquisition will enable Con-way to retain margins from this contract business.
• Increased Mexico presence. With operations in Mexico for nearly 20 years, CFI is recognized as one of that country’s leading transportation providers, and is among the largest participants in the market for cross-border truckload freight. Combining CFI’s network with Con-way Freight’s Mexico network and Menlo’s in-country and border-based logistics operations significantly improves the combined company’s presence and capabilities in Mexico.
• CFI’s strong customer base in the retail and consumer products industries complements Con-way Freight’s strength in the industrial and manufacturing sector, and also aligns well with Menlo Logistics’ principal industry verticals.
• Larger network footprint. The acquisition creates one of the most extensive infrastructure networks for LTL, TL and logistics management, as well as the sixth largest truck transportation company in North America.
• Menlo Logistics synergies. Menlo manages approximately $600 million in domestic TL spend. The acquisition will present opportunities for CFI and Menlo to collaborate, freight flows to further optimize operations for customers.
• New services, Con-way and CFI will deliver a more comprehensive service menu for the heavy-weight freight portion of the industry, and will be able to leverage assets across a larger and more diverse customer base.

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