XPO Logistics, Inc. and Con-way Inc. have entered into a definitive agreement for XPO Logistics to acquire Con-way. 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 capitalize on synergies from the combination with Con-way's managed transportation, truckload and freight brokerage businesses.
Headquartered in Ann Arbor, Mich., 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.
XPO intends to raise its year-end 2015 target run rates for revenue and EBITDA, and issue new long-term targets, upon completion of the acquisition.
Under the terms of the agreement, XPO will launch a tender offer for all of Con-way's outstanding shares at a cash price of $47.60 per share. Following the tender offer, if successful, Con-way will merge with a subsidiary of XPO, becoming a wholly owned subsidiary of XPO, and all remaining outstanding shares of Con-way will receive the same consideration paid to stockholders who participated in the tender offer.
The total transaction value is approximately $3.0 billion, including $290 million of net debt. The transaction value represents a multiple of approximately 5.7 times Con-way's 2015 consensus EBITDA of $528 million. The per-share cash price represents a premium of approximately 31.6 percent compared to the closing price of Con-way common stock on Sept. 8, 2015, and a premium of 22.9 percent compared to the average closing price over the trailing 90 trading days as of September 8, 2015.
Bradley Jacobs, chairman and chief executive of XPO Logistics, will retain these positions and lead the combined company. Douglas Stotlar, Con-way's president and chief executive officer, will serve in a limited role as an independent advisor to the combined company through the first quarter of 2016.
The transaction is not conditioned on financing. XPO has received committed financing from Morgan Stanley in the aggregate amount of $2.0 billion. The company has approximately $1.2 billion in cash and an undrawn $415 million ABL revolver, and Con-way has approximately $424 million of cash. XPO expects to substantially increase its ABL capacity based on the addition of receivables from the acquisitions of Norbert Dentressangle and Con-way.
XPO will remain asset-light with net capex of 3.3 percent of revenue, and with asset-based operations accounting for about a third of sales.
The transaction is expected to close in October 2015, following the successful completion of the tender offer and subject to the satisfaction of customary conditions, including regulatory approvals. The boards of directors of XPO and Con-way have unanimously approved the transaction.
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 $35 billion market. LTL is a non-commoditized, 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."
Jacobs continued, "The Con-way transaction will nearly double our pro-forma full year EBITDA to approximately $1.1 billion and increase our revenue to $15 billion upon closing. We'll immediately begin executing our plan to improve the operating profit of the acquired operations by $170 million to $210 million over the next two years. We'll raise our year-end 2015 target run rates for revenue and EBITDA, and issue new long-term targets, when we close."
Douglas Stotlar, president and chief executive officer of Con-way, said, "This landmark transaction provides immediate cash value for our shareholders and reflects the outstanding contributions of our employees over our 86-year history. The combination will mean more services for our customers, more miles for our drivers, and more career opportunities for our employees as part of XPO's global organization. We look forward to working with the XPO team to complete the transaction and ensure a smooth transition."
XPO will offer best-in-class LTL services to its 16,000 customers in North America as the second largest LTL provider, with world-class capabilities for reliable, time-definite service. Nearly all of XPO's current brokerage customers require LTL transportation, and the majority of Con-way's 36,000 customers can utilize multiple XPO services.The company will further its growth strategy with the addition of Con-way's transportation and logistics platform:
XPO expects to increase annual operating profit from the acquired operations by $170 million to $210 million through cost savings and operational improvements executed over the next two years.
The combination will expand XPO's global contract logistics platform by 22 million square feet, to a total of 151 million square feet, 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 combination will strengthen XPO's position in the highly desirable e-commerce sector, which is projected to grow at a pace of 18 percent to 21 percent annually. XPO and Con-way both have e-fulfillment contract logistics platforms in North America and Europe.
Between the recent acquisition of Norbert Dentressangle, and the planned acquisition of Con-way, XPO will have significantly more ground transportation capacity to serve customers in Europe and North America. XPO's network of brokered, owned and contracted capacity will have lane density covering approximately 99 percent of all postal codes in the United States, as well as the regions that produce 90 percent of the eurozone's GDP.
The addition of Con-way's truckload fleet, including dedicated carriage, will increase cross-border Mexico services, which include intermodal, truck brokerage and expedite. Cross-border growth is projected to outperform industry growth, due to the near-shoring of manufacturing.
The combination will grow XPO's global ground transportation network to approximately 19,000 owned tractors and 46,000 owned trailers, 10,000 trucks contracted through independent owner operators, and access to more than 50,000 independent carriers. In North America, XPO will have approximately 11,000 owned tractors and 33,000 owned trailers, 6,000 trucks contracted through independent owner operators, and access to more than 38,000 independent carriers.
XPO will share best practices between its extensive LTL networks in North America and Europe to increase asset utilization and serve customers more efficiently. In Europe, XPO has leading LTL positions in the United Kingdom, France, Spain and Portugal.
The company will have combined scale of approximately 84,000 employees at 1,469 locations in 32 countries. XPO will fully integrate all Con-way's operations under the single global brand of XPO Logistics and will expand the sharing of best practices throughout its organization.
XPO intends to increase annual operating profit from the acquired operations by $170 million to $210 million through cost savings and operational improvements executed over the next two years.
Within 12 months of closing the acquisition, the company expects to realize cost synergies through the following actions:
- Improving purchasing and supplier management related to facility operations, equipment, fuel, professional services, maintenance, supplies and marketing;
- Leveraging its combined technology infrastructure to reduce Con-way's annual technology spend of $227 million, which is largely outsourced;
- Eliminating duplicative back office and public company costs; and
- Expanding its freight brokerage platform with the integration of Con-way's $200 million brokerage business, to share capacity and data through XPO's proprietary Freight Optimizer technology.
In the second year, the company expects additional profit improvements by:
- Reducing its $3.6 billion combined spend on purchased transportation;
- Using the larger flow of data from its combined $2.7 billion of freight under management to identify carriers, assign loads and fill backhauls more efficiently; and
- Utilizing its extensive intermodal network to improve LTL line-haul efficiency.