- The Washington Times - Monday, May 16, 2005

ATLANTA (AP) — UPS Inc., the world’s biggest shipping carrier, is stepping up expansion of its freight delivery business with its $1.25 billion purchase of trucking company Overnite Corp., a move that drew quick response from rivals who vowed not to be deterred.

The deal announced yesterday is UPS’ largest single acquisition, and follows the Atlanta-based company’s decision last week to spend $24 million to build and equip five regional freight hubs at airports across the country. Overnite shares soared 43 percent; UPS shares also rose.

Shipping heavy freight has been a small percentage of UPS’ overall business, but the company wants to give it greater emphasis — and there’s plenty of money in it. Freight hauled by trucks in the United States generated $671 billion in revenue for delivery companies in 2004, according to the American Trucking Associations.

“That’s an area where we want to be able to offer every option to our customers, whatever they need,” said Scott Davis, UPS’ chief financial officer.

Competitors that carry freight, such as Memphis, Tenn.-based FedEx Corp. and Overland Park, Kan.-based Yellow Roadway Corp., wasted little time weighing in.

“This transaction doesn’t create a new competitor; it’s a competitor we’re familiar with,” said Doug Duncan, chief of FedEx’s freight division. He said his company has been working since 2001 to integrate its business with other services to offer total solutions to customers.

“As long as we focus on the customer … that will have a lot more impact on our success than worrying about what the next competitor might be,” Mr. Duncan said.

Bill Zollars, chief executive officer of Yellow Roadway, said the UPS name may add some strength to Overnite’s business, but he thinks his company is able to differentiate itself from UPS and FedEx.

“There’s a lot of brand power there obviously,” Mr. Zollars said in an interview. But “I think the advantages we have over UPS and FedEx is, we’re a smaller company, a little bit lighter on our feet.”

UPS’ new air hubs will allow the company to ship freight that weighs more than 150 pounds using more of its own planes. Similarly, the Overnite purchase will allow UPS to deliver heavy freight in its own trucks rather than solely contracting out that service, as it has done in the past. UPS will still use some third-party providers, Mr. Davis said.

Last December, UPS bought Menlo Worldwide Forwarding, an air freight business in Redwood City, Calif., which has helped it expand into time-definite guarantees on heavy freight.

Under the deal announced yesterday, Overnite stockholders will receive $43.25 for each Overnite share. That represented a 46 percent premium to Overnite’s closing price of $29.58 on Friday. Yesterday, Overnite shares climbed $12.94, or 43.8 percent, to close at $42.52 on the Nasdaq Stock Market, while UPS shares rose $1.03 to close at $73.18 on the New York Stock Exchange.

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