FedEx near to acquire trucking company

Package delivery company FedEx Corp. is near to completing a deal to buy a Florida-based trucking company for up to $1 billion, according to local media reports.

Reports that Memphis, Tennessee-based FedEx is in talks to acquire privately-held carrier Watkins Motor Lines surfaced in the Lakeland Ledger and the Memphis Commercial Appeal earlier this week. The articles were later cited in analyst reports.

FedEx and Watkins, based in Lakeland, Florida, just east of Tampa, declined to discuss the reports.

"We do not comment on market rumors," FedEx spokesman Howard Clabo told Reuters.

Analysts estimate Watkins generated just over $1 billion in revenue in 2005. Like FedEx, Watkins is a non-union carrier. As a so-called less-than-truckload (LTL) shipper, it consolidates smaller loads into a single truck shipment.

FedEx already has its own LTL unit, FedEx Freight, which it built out of three trucking company acquisitions between 1998 and 2001. The unit has high margins - 11 percent in fiscal year 2005, compared with 8.4 percent for the whole group - and revenue of $3.2 billion in 2005.

In a research note, BB&T analysts John Barnes and Adam Thalhimer wrote: "While we don't generally like to comment on speculative events, this particular rumor has been reported in the press in recent days, perhaps supporting its credibility."

"We like the sound of this potential deal," they wrote, adding that Watkins' experience with long-haul LTL service could augment FedEx's regional LTL business.

If an acquisition does take place, they said the purchase price could be between $700 million and $900 million.

Morgan Stanley analysts Chad Bruso and James Valentine wrote the acquisition could have negative implications for competing LTL carriers YRC Worldwide Inc. and Arkansas Best Corp.

In a research note Edward Wolfe of investment bank Bear Stearns said the "potential purchase of a long-haul LTL carrier makes sense from a strategic basis and would be accretive to (FedEx's) earnings."

FedEx shares closed down 36 cents on Wednesday on the New York Stock Exchange at $107.32. According to market research firm Track Data, FedEx options sentiment was mixed and volumes were within their normal range.