Con-way plans 5 million share offering

Con-way Inc. said late Wednesday it plans to issue nearly 5 million new shares of company stock, a move likely aimed at funding the purchase of new trucking equipment but one criticized by some analysts concerned that the public offering dilutes the company's value and may signal uncertainty about its outlook.

The trucking and logistics company announced it would offer to the public 4.3 million shares in addition to giving the deal's underwriters an option to buy 645,000 additional shares. The offering in total would result in a nearly 10 percent increase in Con-way's current share base of about 50 million. The offering was priced on Thursday at $35 a share, according to Gary Frantz, a Con-way spokesman. Frantz declined further comment.

The company said in a statement that it would use the proceeds for "general corporate purposes."

Analysts at JPMorgan Chase said the funds would probably be used to modernize its truck fleet, notably the equipment operated by its truckload division, Con-way Truckload.

Vehicles in the company's truckload fleet average 3.16 years of age, higher than the ideal average age of two years, according to Morgan analysts. The analysts estimate that vehicles in Con-way's less-than-truckload fleet average about five years of age.

"Our sense is that with the company's average fleet ages having moved meaningfully beyond the level that Con-way views as optimal, the cost/benefit tradeoff of higher maintenance cost versus deferred capital outlay for new equipment is now less attractive," the analysts said in a research note.

However, Con-way's decision to issue new shares to fund the purchases—rather than using $280 million in cash reserves or adding debt to what is considered a low-leveraged balance sheet—didn't sit well with the Morgan analysts. In the note, they speculated that the company's conservative financing strategy could reflect caution over the current operating environment. Its choice to issue new equity "signals to us some uncertainty in the outlook," Morgan said.

Investors didn't take the news positively. Con-way stock closed Thursday down nearly $3 a share in a generally weak equity market.

Should Con-way use the offering's proceeds to fund equipment investments, it would be another sign that trucking companies are looking to add to or modernize their fleets to prepare for rising freight volumes as the U.S. economy recovers. During the severe freight recession of the past four years, truckers have either been reducing capacity or keeping older equipment longer than they would have if volumes were stronger.

Earlier this week, trucking and logistics giant J.B. Hunt Transport Services Inc. announced it would acquire 5,000 new power units from manufacturer Navistar Inc. over the next five years.