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Roadway looking for deals
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May 30, 2001: 12:23 p.m. ET
Trucker forms holding company to eye combos; joins air cargo joint venture
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Roadway Express Inc., one of the nation's largest trucking companies, is looking at possibly buying, merging with or partnering with other companies. Its first deal is a joint venture with the nation's two largest passenger airlines, which will give it access to the air freight market.
Akron-based Roadway (ROAD: up $0.11 to $26.51, Research, Estimates) announced Wednesday it is forming a holding company, Roadway Corp., to explore possible deals.
It also announced an agreement with UAL Corp. (UAL: down $0.64 to $37.46, Research, Estimates), owner of United Air Lines, and the American Airlines unit of AMR Corp. (AMR: down $0.29 to $38.00, Research, Estimates). The name of the venture is Integres Global Logistics Inc. James Hartigan, a well-respected air freight executive who previously served as vice president of cargo for United, will be CEO and chairman of Integres.
Also included in the joint venture are UTi Worldwide Inc. (UTIW: down $0.03 to $18.14, Research, Estimates) a logistics management company, as well as Unisys Corp. (UIS: down $0.28 to $11.97, Research, Estimates) and privately-held G-Log, which will provide the technology for the venture and be equity partners as well. Roadway, UAL and Unisys being the majority partners.
The amount of Roadway's investment in the venture is "not material" to its operations, according to spokesman John Hyre. Hyre would not identify what types of companies Roadway might be eyeing, saying it would be too speculative at this point.
Roadway is one of the largest trucking companies that moves pallet-sized shipments of freight from numerous customers in the same truck, a sector of the industry known as less-than-truckload. It is a primarily long-haul carrier whose employees are represented by the International Brotherhood of Teamsters. The LTL sector has seen greater growth in recent years among shorter-haul, non-union carriers. One of Roadway's main competitors, Yellow Corp. (YELL: down $0.15 to $18.96, Research, Estimates) has concentrated on buying some of the regional, non-union LTL carriers.
Trucking deals difficult in past
But Roadway moved away from that segment of the business when the current company was spun-off from what was then Roadway Services Inc., which included nonunion LTL carriers, a logistics company as well as a nonunion parcel delivery company then known as RPS. Those operations have since been purchased by express carrier FedEx Corp. (FDX: up $0.06 to $39.70, Research, Estimates).
One of Roadway's other major LTL competitors, Consolidated Freightways Corp. (CFWY: down $0.06 to $7.74, Research, Estimates) has been struggling in recent years and was almost sold to Yellow Corp. in December of 1998 until talks broke down at the 11th hour. Obligations in multi-employer union pension funds makes it unlikely any buyer other than one which is already a Teamsters trucking company would make a bid for Consolidated Freightways.
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Consolidated Freightways' market capitalization of $172 million is only about half of the net value of the property, plants and equipment it lists on its latest balance sheet, and only 17 percent of its total assets.
But Doug Rockel, analyst with ABN Amro, said he would be shocked if Roadway were to look at either Consolidated Freightways or a non-union LTL carrier. He said that trucking mergers have always been difficult and costly, with many customers taking their business elsewhere to avoid the service disruptions that occur. And he said that the Teamsters would object if Roadway were to again move to buy nonunion carriers.
"Mike Wickham would rather have seen Yellow buy ConFreight, and go after the freight that was lost," said Rockel, referring to Roadway's CEO. "And he's gotten a lot of cooperation out of the Teamsters the last couple of years. To go out and buy a nonunion carrier would be a slap across the face."
Passenger airlines find limited success with cargo
The nation's passenger airlines have given limited attention to air freight, prompting service complaints from freight customers and opening the door for the development of dedicated air cargo carriers. United operates freighters on international routes only and American does not have any freighter flights.
But the bellies of passenger planes offer the lowest-cost opportunity for air freight, and increased freight revenue for the carriers generally falls almost completely to the companies' bottom lines.
The dedicated air freight carriers handling the larger freight shipments, such as Emery Worldwide, a unit of CNF Inc. (CNF: down $0.25 to $31.55, Research, Estimates), have been losing freight to the long-haul LTL carriers, which are now all offering expedited shipments at a fraction of air freight prices.
But the dedicated carriers have a higher cost of moving freight than the passenger carriers, who are making their money and covering their costs with passenger fares.
Rockel said he has a lot of faith in Wickham's judgment, but he's still got doubts about the new air freight effort.
"I want to talk with him before I tell him it's not going to work," Rockel said. "But these things tend to get forgotten about six months after the they're announced." 
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