Trucking Speculation Turns to FedEx, American Freightways Competitors.

NOW THAT FEDEX Corp. of Memphis has announced the $1.2 billion acquisition of American Freightways Corp. of Harrison, can it be true that United Parcel Service could snatch up Arkansas Best Corp.?

"We could see an acquisition...by UPS," said Dan Moore, an analyst who covers the trucking industry for Stephens Inc. of Little Rock. "The factor weighing against that is UPS already has an established [ground-based] network."

Moore speculated that Arkansas Best, the parent company of ABF Freight System Inc. of Fort Smith and one of the biggest less-than-truckload carriers in the nation, could be the prime target for UPS.

Moore said he had heard rumors that UPS had talked to Arkansas Best in the past. David Humphrey, director of investor relations for Arkansas Best, would not comment on speculation that UPS might target the company.

UPS spokeswoman Susan Rosenberg said, "We continuously look at opportunities that may come our way and how they are part of our long-term direction for the company. There isn't anything specific to report despite the fact that one of our competitors is expanding their ground infrastructure. This follows other moves on the ground that they have made, frankly to mirror the integrated network that UPS already has."

But Peter Coleman, an analyst for Banc of America Securities, said he didn't think UPS would be making an acquisition of an LTL freight business just to counter FedEx.

"[UPS] is working on growing their logistics business, and they are working on growing internationally," Coleman said. "I just don't think they're looking on embarking on that type of acquisition.

And he said he didn't think many customers of UPS were screaming for them to get into the LTL business.

Still, Moore said that if Arkansas Best wasn't the main target, the other top less-than-truckload freight businesses that could be targets are US Freightways Corp. of Rosemonet, Ill., and CNF Transportation of Palo Alto, Calif., which is the parent company of Con-Way Transportation Services of Ann Arbor, Mich.

"I don't expect UPS to make an acquisition of a dog company, and that's all that remains other than those three," Moore said. "It would probably make more sense to go with the highest-quality name in the group that provides the best fit, which in my mind would be Arkansas Best."

Arkansas Best could be looking to unload some of its debt. In September, Arkansas Best announced that its subsidiary, Treadco Inc., had entered into a joint venture agreement with Goodyear Tire and Rubber Co.

"It appears that [Treadco] would be sold off after the first of the year [for $72.5 million]," Moore said.

With $185 million debt on its balance sheet, Arkansas Best could take the money from the sale of Treadco and pay down the debt, he said.

"So the company, in effect, would be even more attractive," he said.

Also, Arkansas Best is a union shop, just like UPS. Moore said he scratched Con-Way off the list of potential targets because it is a non-union shop. Nor is Con-Way Transportation's business model easily integrated into a company like FedEx or UPS. Con-Way tends to be more autonomous, comprising several regional companies to make a national network.

US Freightways is much the same, except it is about 35 percent unionized.

"[US Freightways] has lots of moving parts to it," including a truckload carrier company, Moore said.

"When I look at Arkansas Best, I get a little more intrigued in pairing those two up," Moore said.

Last week, FedEx announced that it was buying American Freightways for $950 million in cash and stock and that it would pick up the company's $250 million in outstanding debt.

Moore said FedEx's decision to buy AF was a move to catch up with UPS. The acquisition will allow Memphis based FedEx, which is also the parent company of Viking Freight, to expand its next-day regional LTL freight service to 48 states.

FedEx said it would pay AF $28.13 per share, a 61 percent premium over the price at the close of the market Nov. 10, which was $17.50.

After the announcement, other LTL companies saw their stock prices rise. Arkansas Best surged $1.19 to $17.88, US Freightways swelled $1.56 to $26.25, and CNF Transportation rose 56 cents to $28.88.

Moore said AF's $28.13-per-share price should send a signal to the market that the LTL stocks are undervalued.

Industry experts say the regional LTL market will expand by nearly 10 percent every year through 2004, according to a FedEx news release.

"The American Freightways acquisition also fits into the FedEx business strategy, with companies that operate independently, focused on distinct market segments, yet compete collectively as a single-source provider for all transportation, logistics and e-commerce needs," Frederick W. Smith, chairman, president and chief executive officer of FedEx, said in a statement. "We believe this business model offers superior benefits without the inherent tradeoffs of a one-size-fits-all approach."

Sheridan Garrison, chairman and founder of AF, said in a statement that the deal was good for shareholders, employees and customers.

He said shareholders would receive an excellent price on the stock. The 17,000 employees have greater opportunities with FedEx, and customers benefit from the combination of AF and Viking, which creates an LTL network that provides next-day or second-day service within regions. Viking operated mainly in the West, and AF shipped freight in the Midwest, South and Northeast.

Garrison will become a member of FedEx's board of directors and will serve as chairman emeritus and founder of American Freightways.

Tom Garrison will remain as president and CEO of AF but will report to Douglas G. Duncan, who will become president and CEO of a new FedEx LTL freight division.

Both Viking and AF will operate independently under their own brand names.

The deal won't affect other publicly traded trucking firms in Arkansas, such as J.B. Hunt Transport Services Inc. of Lowell, because they are full truckload carriers instead of LTLs, which transport the freight of several companies inside one trailer within a certain region.

Arkansas Best's Humphrey said he would wait and see what the impact of the acquisition would be on Arkansas Best.

"It's hard to say if there's going to be any impact at all," he said. "It doesn't appear to be that much change."