UPS to buy Overnite trucking company for $1.25 billion
UPS, the integrated package carrier and supply chain management provider, filled in one of the few remaining pieces to its end-to-end suite of freight services by announcing an agreement to acquire Overnite Corp., a major U.S. less-than-truckload carrier, for $1.25 billion in cash.
Richmond, Va.-based Overnite, which serves more than 60,000 customers in North America, Guam and the U.S. Virgin Islands, had net income of $63.3 million in 2004 on revenue of $1.65 billion. Overnite is the former national trucking subsidiary of railroad holding company Union Pacific Corp. that was spun off in November 2003. It comprises two operating companies: Overnite Transportation, which operates in all 50 states, and Motor Cargo a regional LTL that primarily serves the western United States, Canada and Mexico.
“Overnite is a perfect strategic fit for our company,” said Michael Eskew, UPS’s chairman and chief executive officer, in a statement. “We want to offer our customers the broadest portfolio of transportation and logistics services available from a single source and this is an important capability that we needed to have.”
The acquisition is expected to close during the third quarter pending normal regulatory approvals and the go-ahead from Overnite shareholders, UPS said. Overnite will continue to be run by the current management team, led by Leo Suggs, Overnite’s chairman and CEO, Atlanta-based UPS said.
The Overnite announcement comes five months after UPS acquired Menlo Worldwide Forwarding to expand its heavy air freight forwarding capability. UPS, which has a huge cash nest egg it can use for acquisitions, paid about $260 million for Menlo.
UPS has acquired about 30 companies in the last four to five years, most of them to rapidly build its third-party logistics operation, which operates as UPS Supply Chain Services. Speculation has grown in industry circles the last several years that UPS would eventually acquire a less-than-truckload carrier if it wanted to have the domestic scope of logistics services provided through a single entity.
At a UPS investor conference in New York last week, Eskew deflected questions about UPS’s LTL strategy, saying UPS was satisfied with its hundredweight product, which puts shipments weighing up to 100 pounds in the UPS small package system.
Parcel and logistics industry experts Satish Jindel, who heads SJ Consulting Group, and Doug Caldwell, vice president of AFMS, predicted at a Bear Stearns investors conference the next day that UPS would buy an LTL carrier within the next two years.
Consolidation is taking place a steady pace in the LTL industry and UPS will now go head-to-head with YellowRoadway Corp., the result of the merger between Yellow Transportation and Roadway Express. YellowRoadway recently announced its intention to acquire USF Corp., another larger LTL carrier.
UPS will also have to figure out how to integrate Overnite’s driver force, which is mostly non-union. A few Overnite terminals are unionized, but Overnite fought hard to prevent the Teamsters for organizing other terminals. UPS drivers are represented by the Teamsters.