DC Velocity - October 2015

newsworthy

A COUPLE OF YEARS AGO, XPO LOGISTICS INC. PURsued a buyout of Menlo Worldwide Logistics, the global contract logistics arm of Con-way Inc., but it couldn’t make a deal work. In the months to follow, Bradley S. Jacobs, XPO’s founder, chairman, and CEO, spoke to hundreds of customers who told him that if XPO wanted a “seat at the adult table,” it would, to a large degree, need to control its assets.

Last month, Jacobs took his seat, agreeing to spend $3 billion in cash and assumption of debt to buy Ann Arbor, Mich.-based Con-way Inc. Con-way is the parent of one of the nation’s largest less-than-truckload (LTL) carriers, a moderately sized truckload unit with operations in the U.S.-Mexico trade lane, the Menlo contract logistics arm, and its Con-way Multimodal managed transportation division. Combined, the divisions generate about $5.5 billion in annual revenue.

Jacobs said the acquisition makes Greenwich, Conn.-based XPO the second-largest LTL Freight, the LTL unit of Memphis, Tenn.-based FedEx Corp. The deal puts XPO squarely in the asset-based arena and represents a dramatic pivot from the company’s strategy of building a multibillion-dollar enterprise through the acquisition and integration of nonasset-based providers and by launching nonasset-based operations. In North America, XPO said, it will own approximately 11,000 tractors and 33,000 trailers, have 6,000 trucks contracted through independent owner-operators, and have access to more than 38,000 independent carriers. Globally, XPO will own approximately 19,000 tractors and 46,000 trailers, have 10,000 trucks contracted through independent owner-operators, and have access to more than 50,000 independent carriers.

Jacobs explained that the shift from a largely nonas-
set-based strategy to one that incorporates a significant
amount of assets is designed to provide XPO with a “more
blended model of brokered, owned, and contracted capac-
ity.” One major reason for that change—which he termed
an “evolution”—is that by controlling assets, XPO will be
able to reliably serve customers during periods of tight
capacity. Jacobs also said that his experience with Norbert
Dentressangle, the French third-party logistics company
(3PL) bought in April for US$3.5 billion, had led him to
take a fresh look at XPO’s long-term strategy. After speak-
ing with many of Dentressangle’s customers, he said, he
gained a greater appreciation of the benefits of offering a
broader array of services.
“If you have assets, you can do more business with those
customers,” he said. Otherwise, “you’re only going to get 2,
3, or 4 percent of those customers’ transportation spend.”
By adding Con-way and Menlo, XPO can sell its existing
services to their customers and vice versa, he said.

The XPO-Con-way deal is expected to close around the
end of October.

ALL UNITS TO BE REBRANDED

As for what’s ahead, Jacobs said that the Con-way Freight network will operate as it currently does, but that there will likely be headcount reduction on the corporate side. Con-way’s contract logistics business and small $200 million truck brokerage operation will be folded into XPO’s existing service lines, he added. The combination of XPO’s existing managed transportation business and Con-way Multimodal will have about $2.7 billion in freight under management, Jacobs said. All of Con-way’s units will be rebranded as XPO Logistics.

Con-way President and CEO Douglas W. Stotlar, who in recent years has been criticized by analysts for failing to maximize the value of the company’s assets, will serve in a limited role as an independent adviser through the first quarter of next year. Because there are few trucking executives available to step in and run an LTL operation the size of Con-way Freight, it is expected that most of the projected profit increases will come from enhanced operational and information technology efficiencies, rather than through significant growth sparked by the cachet of having a powerhouse trucking executive at the helm.

One theory is that Jacobs will eventually sell off the trucking operations because only Menlo and Con-way Multimodal blend well with XPO’s existing businesses. Con-way’s asset-based units have been considered under-performers for years. The LTL business, while p. 16