Analysts View XPO’s Latest Transaction as a Reversal of Fortune for Con-way
Investment analysts and observers greeted the news that XPO Logistics acquired Con-way Inc. for $3 billion as a likely positive step for both companies, but especially for beleaguered Con-way.
They said that Con-way has been enmeshed in a decade-long decline that has weakened its financial performance and its once-stellar operational skills.
XPO’s purchase of Con-way is “a change that is long overdue,” given the performance of Con-way’s stock over the past 10 years, said Satish Jindel, president of SJ Consulting, a transportation consultancy.
“As everyone knows, Con-way was the most well-regarded, respected LTL carrier for a long time. But that was a long time ago,” he added.
Con-way operates three divisions: less-than-truckload, truckload and Menlo Logistics. It had revenues of $5.8 billion in 2014, a 6.1% increase from 2013.
Greenwich, Connecticut-based XPO, analysts said, stands to benefit from the scale of new venture, revenue and cost synergies and possibly new management at Con-way, plus the ongoing strategic vision of Bradley Jacobs, XPO’s chief executive.
“The cross-selling opportunities should be ripe for XPO, as nearly all of the company’s current brokerage customers require LTL transportation, and the majority of Con-way’s 36,000 customers can now utilize multiple XPO services,” said Kevin Sterling, analyst with BB&T Capital Markets.
XPO is estimated to have 16,000 brokerage customers.
Benjamin Hartford, an analyst with Baird Equity Re-search, said the transaction, which will result in a firm with annual revenue of $15 billion with about a third of that coming from LTL, perpetuates an industry-consolidation trend “we expect to continue within the transportation space in upcoming years.”
Robert Salmon, an analyst with Deutsche Bank Securities, said the addition of Con-way’s Menlo Logistics unit would enhance XPO’s contract logistics business “as it has exposure to a wide range of verticals, including high-tech and health care, where XPO currently has less of a presence.”
But Allison Landry, an analyst with Credit-Suisse, said XPO must first answer who will lead the asset-based LTL unit and will that person come from inside or outside the company.
“We maintain some skepticism with respect to the ease with which Con-way’s operations can be improved given the complexity of running an LTL network,” Landry said.
Thomas Albrecht, also with BB&T, added that improving Con-way’s results will be more about revenue and cost synergies than new management expertise. “Frankly, while XPO has a lot of talented freight professionals, we’re not aware of any exceptional truckload or LTL management talent.”
Nate Brochmann a William Blair & Co. analyst, drew more confidence in the deal than he otherwise would have due to presence of XPO’s Jacobs.
“For just about any other firm, we would worry that acquiring a business that needs a little work, on top of another large acquisition overseas [French logistics company Norbert Dentressangle in May] plus a questionable economy, would be a potential for disaster. However, Brad Jacobs has created a culture and process that is designed to be systematic and has thus far been proved to work.”
