"synergy" is the word in Con-way's deal for CFI

Con-way Inc.'s announcement last month that it would acquire privately held Contract Freighters Inc. (CFI) for $750 million caught analysts, competitors, and even CFI's employees by surprise. But it didn't take long for them to see that the deal makes good business sense on several levels. Con-way's acquisition of CFI, a North American truckload carrier based in Joplin, Mo., will create the sixthlargest truck transportation company in North America.

In a conference call with financial analysts, Con-way President and CEO Douglas W. Stotlar and Herb Schmidt, CFI's president and CEO, repeatedly referred to the synergies they expect to achieve by aligning CFI with Con-way Freight, Con-way Truckload, and Menlo Logistics. Administrative and purchasing savings would be "very modest," Stotlar said; the big benefits will come in these areas:

• Diversified revenue, customer, and service mix. The combined truckload operations will generate about $500 million in annual revenue, further diversifying Con-way's revenues among less-thantruckload (LTL), truckload, and logistics. CFI's customer base in retail and consumer products complements Con-way Freight's focus on the industrial and manufacturing sector and Menlo Logistics' principal industry verticals. All three will be able to offer existing customers a broader range of services.
• Improved truckload operations. Con-way Truckload and CFI will merge and will be headquartered in Joplin, Mo. Schmidt and his management team will run the truckload business. Stotlar said he did not anticipate any rationalization of staff or facilities. Both men declined to say how the combined organization would be branded.
  
  Con-way gains CFI's extensive office and operations complex, with its high-tech "war room" for dispatching, tracking, and managing equipment across North America. It will acquire 300 new, emissions-compliant tractors that are replacing CFI's older equipment. CFI, which currently has six facilities outside of Joplin, will be able to use some of Conway Freight's terminals as secure drop and hook locations.
• A greater presence in Mexico. CFI earns about 40 percent of its revenues from cross-border business with Mexico. Stotlar noted that CFI's capabilities complement those of Con-Way Freight and Menlo, which could lead to expanded Mexican service offerings.
• Synergies with Menlo Logistics. Menlo manages about $600 million in domestic truckload services for its customers, some of which already is handled by CFI. But Menlo has some costly head-haul problems that will largely be resolved when CFI and Menlo can use each other's freight to balance lanes, Stotlar said. In fact, that was a major consideration in the buyout decision. "Empty miles are a much greater problem now because of the cost of fuel," he said. "Carriers don't capture a fuel surcharge on those empty miles, so the benefits of reducing empty miles are much greater today, proportionally speaking."
  
  "We were amazed by all the synergies we identified as this has unfolded," said Schmidt. There are more to come, though: As soon as the deal was announced internally, Stotlar said, employees began suggesting even more ways the two carriers could benefit from the acquisition.