By Laura Stevens
United Parcel Service Inc. said it agreed to buy
shipping-services provider Coyote Logistics LLC for $1.8 billion,
which would expand its presence in the burgeoning freight-brokerage
business and help it handle the volatility of its peak holiday
season.
UPS, which is acquiring Coyote from private-equity firm Warburg
Pincus LLC, said Friday that it expects the addition to eventually
boost profits by $100 million to $150 million and start adding to
earnings in 2016.
That is in part because UPS has since 2012 been contracting with
Coyote to find extra truck space to help haul the increasing flood
of holiday e-commerce, UPS Chief Commercial Officer Alan
Gershenhorn said in an interview with The Wall Street Journal.
The delivery giant has been working on increasing profitability
and reducing costs after tough back-to-back holiday seasons.
An especially attractive addition to UPS's portfolio will be
Coyote's proprietary technology which enables it to find and sell
empty space on trucks, Mr. Gershenhorn said. UPS has about seven
million empty trip segments annually on its own trucks, as it
drives between delivery centers and other destinations. Coyote will
help it fill that space, which will make UPS more efficient and
should boost revenue.
"If Coyote gets a match that fits our system and that meets the
needs of the customer, then UPS will move that," he said. UPS also
will offer its customers use of the technology to fill their own
empty trucks.
In a separate matter, FedEx Corp. hit some regulatory scrutiny
on the acquisition front. The European Commission on Friday opened
an in-depth investigation into its nearly $5 billion deal to buy
Dutch delivery company TNT Express NV, saying it was concerned
about the merged company's dominance in international delivery in
some markets.
The regulator said it would take until Dec. 8 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.
Analysts said the review of the FedEx-TNT deal wasn't
surprising, given its size, and that it was largely expected by the
market.
The deals are the latest in a series of mergers and acquisitions
in the transportation industry as more traditional companies seek
new ways to grow in a rapidly changing global economic and
technological environment. Companies ranging from Amazon.com Inc.
to Uber Technologies Inc. are entering the delivery arena, as
smartphones enable rapid logistical advances not possible a decade
ago.
Meanwhile, price, not speed, has become most important to
consumers and shippers in an e-commerce world built on the promise
of free shipping.
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. UPS said that Coyote Logistics has been growing
in the double digits and earned $2.1 billion in revenues in
2014.
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.
As for the FedEx deal, TNT Express said in a release that the
extended review by the European Commission is customary. FedEx said
it continues to make progress on regulatory steps around the world,
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 FedEx's
Patrick Fitzgerald, senior vice president integrated marketing and
communications.
Gabriele Steinhauser contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com
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