Yellow Roadway Corp. announced it has reached a deal yesterday to acquire USF Corp. for approximately $1.37 billion. This follows the Yellow-Roadway merger, which involved the country’s two largest LTL carriers over a year ago.
The USF acquisition, which is expected to close this summer, will create a combined enterprise that is expected to have an annual revenue totaling over $9 billion, with more than 70,000 employees and 1,000 service locations.
The deal, pending approval from shareholders and antitrust regulators, would fortify the largest LTL carrier’s stronghold in regional and next-day services. The addition of USF will also expand Yellow’s national and international transportation services.
“USF represents an excellent opportunity to leverage the successful strategy that was employed with Roadway,” said Yellow Roadway chairman, president & CEO Bill Zollars. “When applied to USF, this includes maintaining the strong separate brand identities, customer interfaces and distinct operations of each business unit.
“With the addition of USF, we continue to accelerate our growth, earnings and positive momentum,” Zollars continued. “Our strategic rationale for this transaction is focused on enhanced scale, complementary service offerings and significant cost synergies. USF provides Yellow Roadway with immediate and nationwide scale in next-day and regional markets, which are among the fastest growing transportation segments. Additionally, our logistics and truckload capabilities will be enhanced by the USF service capabilities.”
USF shareholders will elect for each share $45 in cash or 0.9024 shares of Yellow Roadway common stock. All shareholder elections will then be adjusted so that the gross cash consideration will total approximately $639 million, and the balance will be paid in stock. On Friday at 4 pm USF shares traded in the Nasdaq for $38.82 while Yellow sold for $61.31.
The relatively high price Yellow has offered for the USF deal has investment firm Bear Stearns wary of Yellow’s decision.
“The large premium that Yellow is paying for USF compared to past LTL acquisitions will require Yellow to extract strong synergies early on to make the deal have any chance of being successful in the intermediate term,” stated Bear Stearns.
But Yellow’s recent success on its merger with Roadway, with record revenues, operating income, and margins through the 2004 fiscal year, has analysts thinking twice.
“Yellow management has gained tremendous credibility from their solid execution of the Roadway merger and believes it has the template and the experience to purchase another large LTL company and run it separately while extracting strong ‘back room’ type synergies from purchasing and corporate spending,” Bear Stearns said.
“People thought they paid too much for Roadway a year and a half ago and look what happened to their stock after the management handled the integration,” Satish Jindel, president of transportation strategy consulting firm SJ Consulting Group, told Fleet Owner.
“The underlining strategy makes sense,” Jindel continued. “USF Holland is one of the best unionized regional operations in the country. USF logistics is also a strong operation. Yellow will also see synergies in technology, marketing and back office administration.”
The International Brotherhood of Teamsters, which has tens of thousands of members in both Yellow Roadway and USF, said yesterday that it is “prepared to take every necessary and appropriate step” to protect the contracts of its members.
After the transaction is completed, the executive structure will be as follows:
- Jim Staley, current president of Roadway group, will become president of the Yellow Roadway regional companies, which will include New Penn Motor Express, USF Holland, USF Reddaway, USF Dugan and USF Bestway. Stanley will also be responsible for the truckload unit of USF, Glen Moore,
- Bob Stull, who currently reports to Jim Stanley as president of Roadway Express, will continue that role and report directly to Zollars,
- James Welch, president of Yellow Transportation, will continue in that role,
- Jim Ritchie will continue as president of Meridian IQ, the logistics unit of Yellow Roadway, which will include the operations of USF Logistics,
- Mike Smid will remain as president of Yellow Roadway Enterprise Services and chief integration officer.
