(FROM THE WALL STREET JOURNAL 8/1/15)
By Laura Stevens and Paul Page
United Parcel Service Inc. has agreed to buy Coyote Logistics
LLC for $1.8 billion, looking to expand in the burgeoning
freight-brokerage business and get a better handle on the peak
holiday shipping season.
UPS, which is acquiring the shipping-services provider from
private-equity firm Warburg Pincus LLC, said Friday it expects the
addition to start contributing to earnings next year, eventually
pitching in $100 million to $150 million.
UPS has been contracting with Chicago-based Coyote since 2012 to
find extra truck space for the growing flood of holiday e-commerce,
UPS Chief Commercial Officer Alan Gershenhorn said in an interview.
The delivery giant has been working on reducing costs after tough
back-to-back holiday seasons damped profit.
A prized addition to UPS's portfolio will be Coyote's
proprietary technology, Mr. Gershenhorn said. The company will use
it to make better use of its fleet of trucks, some of which drive
empty between warehouses or package-sorting hubs on return trips.
Filling that space should boost efficiency and revenue. UPS will
also offer its customers use of the technology to fill out their
own trucks.
Founded in 2006, Coyote was an early entrant into a new world of
freight that used the promise of combining technology and analytics
to win the business of retailers and manufacturers.
Founder Jeff Silver said Coyote hires young employees with no
experience in transportation and trains them on an electronic
platform that connects brokers and customers. The software helps
spot where shipping needs of customers overlap, allowing brokers to
find space on trucks more easily and to offer cheaper prices in
buying the capacity, Mr. Silver said.
"We become a network integrator for our customers," he said. "It
gets us out of the role of just being a traditional broker."
Coyote's technology has helped it rise quickly in a competitive,
yet highly fragmented, market. The company booked $2.1 billion in
revenue last year, according to UPS. According to Armstrong &
Associates, a research firm, Coyote ranks 17th by revenue among
third-party logistics providers, a wider universe of companies that
also includes freight brokers. UPS Supply Chain Solutions ranked
fourth with $5.76 billion in revenue, though it had largely steered
clear of freight brokering before Friday's deal.
In a separate matter, UPS rival FedEx Corp. hit a bump with its
planned acquisition of TNT Express NV. The European Commission on
Friday opened an in-depth investigation into Fedex's nearly $5
billion deal for the Dutch delivery company, saying it was
concerned about the merged company's dominance in international
delivery in some markets.
The regulator said it would take until early December to decide
whether it will approve the deal or ask for concessions to ease its
concerns. The two other large international delivery companies, UPS
and DHL Worldwide Express Inc., may not provide sufficient
competition to the merged company, the antitrust watchdog said.
On its earnings call in June, FedEx executives said they did
"not believe that the transaction faces any competition issues for
the Commission." A similar attempt to acquire TNT by UPS collapsed
in 2013 when it failed to satisfy European regulators.
TNT Express said in a release that the extended review by the
European Commission is customary. Analysts said the review wasn't
surprising and had been largely expected by the market.
FedEx said it continues to make progress on regulatory steps,
which would allow it to complete the transaction in the first half
of 2016. "We will continue to work together with TNT Express to
meet the European Commission's need for additional due diligence
and are confident that the combination of both companies will
increase competition and create benefits for customers," said
Patrick Fitzgerald, senior vice president integrated marketing and
communications at FedEx.
As delivery companies look for growth, third-party logistics
providers like Coyote are becoming more attractive. Revenue from
those U.S. logistics providers rose 7.4% to $157.2 billion last
year, faster than the 2.8% growth in logistics spending overall,
according to research firm Armstrong & Associates.
FedEx acquired logistics company GENCO Distribution System Inc.,
a company that specializes in product returns, for $1.4 billion
earlier this year.
Europe has also become increasingly attractive for growth. UPS
has said it is doubling its investment there to nearly $2 billion
over five years, while XPO Logistics Inc. earlier this year said it
was purchasing French contract-logistics firm Norbert Dentressangle
SA in a deal valued at $3.53 billion.
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Gabriele Steinhauser contributed to this article.
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