Con-way to acquire CFI for $750 million

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Con-way Inc. announced today, July 16, that it has entered into an agreement to acquire Contract Freighters Inc., a privately held North American truckload carrier based in Joplin, Mo., in a transaction valued at $750 million.

Founded in 1951, CFI is an industry-leading service provider that today operates more than 2,600 tractors and more than 7,000 trailers, with more than 3,000 employees, including about 2,500 drivers that serve customers throughout North America. In 2006, revenues were 427 million, 40 percent of which came from Mexico-related business. The company is debt free and has been solidly profitable.

The acquisition elevates Con-way into a unique position in the freight transportation industry, creating a leading less-than-truckload, TL and supply chain management enterprise with a broad portfolio of high-value solutions, says Douglas W. Stotlar, president and chief executive officer of San Mateo, Calif.-based Con-way.

“Acquiring CFI is a significant addition to Con-way’s ability to serve the customer,” Stotlar says. “It establishes a superior platform for growth, clearly differentiating Con-way as a premier provider of supply chain and freight transportation solutions. This acquisition is a cornerstone of our strategic plan to grow the company, build competitive advantage and increase shareholder value.”

The acquisition will join CFI with Con-way’s existing Con-way Truckload division with 470 drivers, creating a business unit with more than $500 million in annual revenues for TL freight, the companies say. The new business unit will account for about 20 percent of Con-way’s linehaul movements.

Together with the complementary capabilities of LTL carrier Con-way Freight, and global supply chain services provider Menlo Logistics, the Con-way organization will deliver an expanded transportation and logistics platform to North America-based shippers as well as global businesses, from “first-mile” sourcing in Asia or Europe, to “last-mile” delivery in North America, the organization says.

“We are excited to join the Con-way family of operating companies,” says Herb Schmidt, president and CEO of CFI. “CFI will benefit from Con-way’s infrastructure, broad service capabilities and strong brand recognition. Becoming part of the Con-way organization will allow us to penetrate new markets and provide new services to our customers. In addition, Con-way and CFI share service philosophies and common values such as safety, integrity, commitment and excellence.”

The acquisition will be structured as a merger, as a result of which Con-way will acquire CFI’s parent holding company, Transportation Resources Inc., CFI and all other subsidiaries of the parent holding company. The acquisition is subject to customary review by regulatory authorities and fulfillment of closing conditions. The boards of directors of both companies have approved the transaction, which is expected to conclude during the 2007 third quarter.

The companies expect to realize a number of strategic benefits from the combination, including:

  • Diversified revenue mix. The combined TL operations will generate about $500 million in TL revenue for the Con-way enterprise, enabling the company to reach a more diversified mix between LTL, TL and logistics revenues, helping to moderate the effects of cyclical swings in the business units. With the acquisition of CFI, Con-way’s truckload and Menlo logistics units account for 40 percent of revenues.
  • Improved TL operations. Con-way’s existing TL operations will be integrated into CFI’s headquarters in Joplin. Moving this under CFI’s best-in-class operating and management practices will markedly improve profitability on Con-way Truckload’s existing revenue generated through dedicated line-haul services for its sister LTL company Con-way Freight.
  • Retained contract carrier margins. CFI is Con-way Freight’s largest provider of contract services for long-haul transcontinental TL transportation. The acquisition will enable Con-way to retain margins from this contract business. In addition, Con-way Freight is CFI’s largest customer, and the company foresees opportunities to further optimize freight operations for both the LTL and TL networks through this acquisition.
  • Enhanced Mexico presence. With operations in Mexico for nearly 20 years, CFI is recognized as one of that country’s leading transportation providers, and is among the largest participants in the market for cross-border TL freight. Combining CFI’s network, experience and expertise with Con-way Freight’s Mexico network and Menlo’s in-country and border-based logistics operations significantly improves the combined company’s presence and capabilities in Mexico.
  • Expanded presence in key industries. CFI’s strong customer base in the retail and consumer products industries complements Con-way Freight’s strength in the industrial and manufacturing sector, and also aligns well with Menlo Logistics’ principal industry verticals.
  • Larger network footprint. The acquisition creates one of the most extensive infrastructure networks for LTL transportation, TL and supply chain, distribution and logistics management, as well as the sixth-largest truck transportation company in North America.
  • Synergies with Menlo Logistics. Menlo manages about $600 million in domestic TL transportation services on behalf of its customers, some of which already is handled by CFI. The acquisition will present opportunities for CFI and Menlo to collaborate, where practical, on freight flows to further optimize operations for its customers, introduce new services, and drive efficiencies in the Con-way network, all while fulfilling Menlo’s responsibility to deliver the best-cost transportation solution focused first on the requirements of its customers.
  • Accelerated growth opportunities, expanded services portfolio. As a combined company, Con-way and CFI will deliver a more comprehensive service menu for the heavyweight freight portion of the industry, and will be able to leverage assets and networks to grow the company with complementary new products and services across a larger and more diverse customer base.
  • Stotlar and Schmidt both cited the similar cultures and focus on service integrity, which are inherent to both organizations, as a key factor in joining the companies. “We’re very excited about this acquisition and the positive effect that joining these two industry leaders will have on the transportation and logistics market,” Stotlar says. “This is a unique and powerful fit of two successful companies that together have great prospects for growth, and for driving sustainable service advantage for our customers, opportunities for our employees and increasing value for our shareholders.”

    Con-way intends to fund the acquisition with existing cash resources together with proceeds from debt financing. The company believes that the allocation of capital to this acquisition will be more accretive than alternative uses of funds. Lead financial adviser on the acquisition for Con-way Inc. was Morgan Keegan & Co., with additional advisory support and financing for the acquisition provided by Goldman, Sachs & Co.

    Con-way also announced plans to close its Memphis-based truckload division following the acquisition. Con-way Truckload Services employs 40 administrative personnel and 550 truck drivers. The 14,000-square-foot office is expected to close within the next four months, says Con-way Truckload Services president Clay Halla.

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