XPO Logistics Inc. said late today it sold its truckload business to Canadian transport and logistics firm TransForce Inc. for $558 million in cash, a move that removes XPO from the asset-based truckload business and catapults TransForce near the forefront of the North American freight market by giving it an operation with a significant U.S.-Mexico cross-border presence.
The sale, proceeds of which XPO will use to pay down debt, ends a year-long saga which began shortly after XPO announced in September 2015 it would buy Con-way Inc., the parent of the truckload unit, for $3 billion. It was clear from the start that the unit, known as Con-way Truckload before the sale, did not figure prominently in XPO's plans. As the 19th largest U.S. truckload carrier in a crowded market, it did not have the scale demanded by XPO Founder, Chairman, and CEO Bradley S. Jacobs, whose mantra in building XPO into a $15 billion a year transport and logistics giant is to acquire and build assets that are either number one or number two in their respective markets.
Jacobs said although the truckload unit was profitable, it could not differentiate itself from the thousands of carriers in the North American truckload market. "We didn't have an edge" in truckload, especially when compared with XPO's competitive positions in its other segments, Jacobs said today in a phone interview.
Last fall, Jacobs disclosed that he had fielded several offers for the truckload unit from unidentified bidders. However, Jacobs rejected the offers and chose to keep the truckload unit in the fold. In the interview today, Jacobs said the offers received last year were inadequate. He characterized the TransForce offer as a "fair deal."
TransForce was not one of last year's bidders, and approached XPO just two months ago, Jacobs said. The truckload unit, which used to be known as Contract Freighters Inc. before the old Con-way bought it in 2007 for $750 million, was considered an albatross for Con-way, largely because of its inflated deal price. Analysts last year pegged the unit's value at no more than $400 million. Jacobs declined to comment on the details of last year's offers.
For Montreal-based TransForce, which owns approximately 60 companies spread across the parcel, less-than-truckload (LTL), truckload, intermodal, and logistics sectors, the purchase dramatically expands its reach across the NAFTA trades. TransForce will control approximately 3,000 tractors and 7,500 trailers, supported by operations in 29 locations. Perhaps most important, the former XPO unit generates 35 percent of its business from U.S.-Mexico cross-border traffic, which will augment TransForce's growing presence in the U.S.-Canada trades, as well as within the U.S and within Canada. Until now, TransForce has had virtually no presence in Mexico.
The company is run by Alain Bédard, whose vision of building a superior one-stop shop of supply chain assets through acquisitions mirrors that of Jacobs. The XPO acquisition "significantly strengthens TransForce's presence in the North American truckload landscape with prominent market positions in domestic U.S. and cross-border Mexico freight," Bédard said in a statement.
TransForce has "acquired a high-quality truckload business with a rich heritage and demonstrated solid operating and financial performance," Bédard said, adding that the company is buying into the truckload space "at a critical time." He didn't elaborate.
TransForce's biggest leap into the U.S. market came in July 2014 when it acquired Transport America, an Eagan, Minn.-based truckload and logistics carrier that operated out of 12 U.S. locations with about 1,500 tractors and 4,400 trailers.
For his part, Jacobs said XPO will stay active in the U.S.-Mexico and intra-Mexico markets through its intermodal, expedited transport, brokerage, and contract logistics operations. "We will continue to have a significant presence in Mexico," he said in the interview.