TFI Buys UPS Freight for $800 Million
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TFI International Inc. is acquiring UPS Freight in an $800 million deal that company leaders said aligns with their businesses individual and shared goals.
Under the deal, announced Jan. 25, UPS Freights less-than-truckload business will operate independently within TFIs LTL business segment under its new name, TForce Freight, while the dedicated truckload side will join TFIs truckload business segment.
The companies also are entering an agreement under which TForce Freight will continue to utilize UPS domestic package network to fulfill shipments for a period of five years. TForce Freight, in turn, will continue to serve the ongoing LTL distribution needs of UPS, TFI CEO Alain B矇dard told Transport Topics.
This deal is strategic to us, but its also strategic for them, he said. We now own the asset, we will manage the assets, we will manage the people and all of that, but well keep on servicing UPS customers on the LTL side because they will be feeding us a lot of customers. At the same time, we also are feeding them a lot of customers on the package side. This is why its such a win-win situation.
Were excited about the future and the opportunities this creates for both UPS and UPS Freight as part of TFI International Inc., UPS CEO Carol Tom矇 said in a statement. The agreement allows UPS to be even more laser-focused on the core parts of our business that drive the greatest value for our customers.
UPS Freight generated approximately $3 billion in revenue last year and was nearly break-even from an operating income perspective, Montreal-based TFI said in a news release. The transaction is expected to be accretive to the companys diluted earnings per share results this year.
B矇dard expressed optimism that the deal will strengthen service offerings to TFI customers, and is hopeful that the acquisition marks the beginning of a long-term relationship.
When we talked to the team there at UPS, we all agreed that this is not a one-on-one deal, B矇dard said. I think that time will prove that this is like an iceberg. What you see today is just one part of a transaction that could be way bigger over time.
UPS said the decision to sell the business was reached following a thorough evaluation of its portfolio, and to align with its better not bigger strategic positioning. That includes paying down long-term debt to strengthen its balance sheet. The company expects to improve its overall operating margin and return on invested capital by roughly 20 basis points.
Credit Suisse Group analyst Allison Landry in an investor report said the deal offers significant growth potential for TFI, and follows another recent foray for the company into the U.S. LTL market; in November 2020, TFI purchased DLS Worldwide.
TFI appears to have found its whale with UPS freight business, Landry wrote in the report. UPS Freight fits with TFIs previously communicated strategy to expand its LTL business in the U.S. Specifically, the U.S. offers a more attractive market than Canada, given that its a small LTL market where competitors compete aggressively.
Landry noted that the deal also offers significant margin potential and will, in turn, generate robust cash flows.
Given that TFI plans to improve DLS margins to 7-8%, we think there is significant upside potential for UPS Freight margin improvement, Landry wrote. This is not unlike TFIs prior strategy to find a business thats not performing as it should and bring the margins up to par with the rest of its business.
UPS Freight employees will now work for TFI. The transaction is subject to customary closing conditions and regulatory approvals. UPS expects to recognize a noncash, pretax impairment charge of approximately $500 million on its statement of consolidated income for 2020.
Goldman Sachs & Co. is serving as financial adviser on the deal while King & Spalding is serving as legal adviser to UPS.
UPS Freight has 14,500 employees and 197 facilities along with 6,340 tractors and 23,400 trailers. .
UPS Inc. ranks No. 1 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. TFI International ranks No. 11.泭
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