Yellow Freight Merger Essays

Yellow Freight Merger Essays Yellow Freight Merger Essay Yellow Freight Merger Essay In the wake of recent industry consolidation, Yellow and Roadway Corporation were looking for ways to strengthen their businesses. In 2003, Yellow Corporation, the nation’s second largest trucking company, acquired the industry leader, Roadway Corporation, creating Yellow-Roadway Corporation. The combination strategy was to bring both the companies strengths together to capture significant synergies and growth opportunities. Management decided to keep both company brands operating separately, continuing them to compete against each other. In an effort to expand their geographic scope and operate regionally, Yellow-Roadway bought USF Corp in 2005; and continued to operate each brand separately. Unfortunately over the next couple years Yellow Corporation and Roadway Corporation were forced to merge operations together. In 2009, they changed their name to YRC Worldwide, Inc. to reflect their finalization of the merger. Due to the many different divisions of the company and the purchase of USF, in 2006 Yellow Roadway Corp changed its name to YRC Worldwide, Inc. n March 2009, Yellow Transportation and Roadway finally merged to create YRC. In 2003, Yellow paid $966 million for Roadway to create Yellow-Roadway Corporation. This acquisition gave them control of more than 15% of the less-than-truckload (LTL) market. The deal valued Roadway at $48 a share, a 60% premium, and required Yellow to assume $140 million in debt. After the announcement of the acquisition, Roadway shares rose 54%, while Yellow shares fell about 5%. The combined company represents only 1% of the $600 billion global freight transportation market. The fact that 70% of Yellows business was from manufacturing and 70% of Roadways business was from retail supported the decision to remain as separate operations. The chairmen from both companies emphasized that their combination was strictly a merger, not a buy-out, since both companies were effectively operating on their own. The near term strategy for the combination was to reduce back-office costs, not to compress the delivery network by closing terminals and laying off truckers. Since both brands were so powerful in the marketplace, the decision to operate separately and compete with each other seemed like a good decision to continually reach new markets and gain more customers. Yellows chairman, William Zollars estimated that by combining back office operations, the newly formed company could save about $45 million in the first year. The result was a 13% increase in revenue and a 43% increase in income from continuing operations from the previous quarter. Upon the realization of these additional cost reductions, this strategy appeared to have paid off. During 2005, Yellow Roadway Corp. paid $1. 5 billion for USF Corporation. This acquisition gave them entry into the regional, overnight freight market all over the country. This new market was growing faster than the long haul market that Yellow Roadway currently served so it was an important strategic step for them. Ultimately, the deal would fortify the largest LTL carrier’s stronghold in regional and next-day services. The addition of USF will also expand Yellow’s national and international transportation services. According to Zollars, â€Å"USF represents an excellent opportunity to leverage the successful strategy that was employed with Roadway. † Basically this means maintaining the strong separate brand identities, customer interfaces and distinct operations of each business unit. This acquisition also enhanced Yellow Roadways current logistics and truckload capabilities. USF shareholders received $29. 25 in cash and $0. 32 of Yellow Roadway shares for each USF share owned. At the time, they were criticized for overpaying (by 16%) for USF stock, but since the past acquisitions proved to be successful, management’s decision had some credibility. (or held promising) with roadway acquisition, analysts said the industry has too many terminals, trucks and too much capacity. They have to look at overlapping operations and cut capacity. Greg burns, transportation analyst at jp morgan. With the acquisitions of Roadway and USF, Yellow created a combined enterprise that expected to have annual revenue of $9 billion, with more than 70,000 employees and 1,00 service locations. In 2007, company had operations in 70 countries and provided logistics as well as global, national and regional transportation services. Operates as the largets ltl provider in the US and is one of the largest transportation service providers in the world. Companys two largest subsidiaries, Yellow and Roadway Express cater to over 300,000 clients in the retail, wholesale, manufacturing and government sectors in North America. Offers supply chain solutions for heavyweight shipments and serves customers who ship industrial, commercial and retail goods.