XPO gets offers for Con-way Truckload as $3 billion transaction of parent nears closing

XPO Logistics Inc., which agreed last month to buy transportation and logistics firm Con-way Inc. for $3 billion, is entertaining offers to sell Con-way's truckload operation, according to a report published today.

Bradley S. Jacobs, XPO's chairman and CEO, told The Wall Street Journal that he has received three offers for the Con-way unit, known as Con-Way Truckload, and that a decision would be based on whether the offers are high enough to offset the amount of debt XPO is taking on. The purchase of Ann Arbor, Mich.-based Con-way is expected to close by the end of October.

John G. Larkin, a transportation analyst at the investment firm Stifel, spent time yesterday with Jacobs and other top XPO executives in Charlotte, N.C. Larkin said in a note today that while many customers like the idea of XPO handling loads with its own assets, the truckload unit is not viewed as a strategic asset for its presumptive new buyer. Joplin, Mo.-based Con-way Truckload, which was known as Contract Freighters Inc. before Con-way bought it in 2007 for $750 million, has been considered a bust for its current parent. Several estimates peg the unit's market value at $350 million to $400 million, and the consensus is Con-way severely overpaid for the business.

The possible disposition of Con-way Truckload is one of many issues facing Jacobs as he prepares to manage what will likely be a complex integration. Con-way's brokerage, managed transportation, and logistics units are expected to be integrated into XPO's existing operations of similar types. The biggest challenge for XPO will be improving the management of its struggling less-than-truckload (LTL) operation, Con-way Freight. That task will occupy most of Jacobs' time because it is by far Con-way's largest unit, with about $3.2 billion in annual revenue.

Larkin, the analyst, said Con-way Freight offers only what he called a "premium service" that addresses only about one-third of the total LTL market. As a result, XPO would offer a slower, economy-like service to reach the balance of the category, he said.

The industry executive said a survey of Con-way Freight customers conducted several years ago found that 61 percent thought the carrier's delivery service to be "too fast." Jacobs will need to find a way to develop a sustainable two-tier service combining time-sensitive and price-sensitive distribution, the executive said. FedEx Freight, the LTL unit of FedEx Corp., successfully offers "priority" and less-expensive "economy" services.

XPO could rely on the intermodal network of its former Pacer International unit to provide the slower service. However, the executive said Pacer's current service is too slow to satisfy LTL shippers.

In the past five months, XPO has made $6.5 billion in acquisitions; in April it bought French transport and logistics giant Norbert Dentressangle S.A. for $3.5 billion. That and an array of other acquisitions will help propel Greenwich, Conn.-based XPO to an expected $15 billion in annual revenue by year's end. Five years ago, it wasn't in business.

Jacobs' strategy, and his company's meteoric top-line rise, has been the talk of the transportation business. Even the industry's dominant force can't help but take notice. "He's an industry all to himself," Frederick W. Smith, FedEx Corp.'s chairman, president, and chief executive, said today at the JOC 2015 Inland Distribution Conference.