(Reuters distributed the following article by Michael Connor on August 4.)
MIAMI — Union Pacific Corp., the largest U.S. railroad, said on Monday it would sell its Overnite trucking unit in an initial public offering timed to exploit an improved cargo-hauling market and Wall Street optimism.
Omaha, Nebraska-based Union Pacific did not disclose the expected price of the IPO, but a regulatory filing says Overnite’s book value was about $600 million on Dec. 31. One analyst estimated Union Pacific might realize $500 million to $700 million from the IPO after expenses.
The planned spin-off of Richmond, Virginia-based Overnite, which generated $1.35 billion in revenue last year, comes just weeks after its two biggest rivals in shared-load trucking agreed to merge. On July 8, Yellow Corp (Nasdaq:YELL – news) said it would pay about $1 billion for Roadway Corp. (Nasdaq:ROAD – news).
Analyst Kirk Schmitt of money-management firm Victory Capital said Union Pacific’s plan also comes when Wall Street values and haulage rates were picking up for “less-than-truckload” companies, which carry cargoes of 10,000 pounds (4,536 kg) or less.
“It’s a business with few synergies for Union Pacific, so it makes sense,” said Schmitt, whose firm owns the railroad’s stock.
Union Pacific said in a news release that it hopes to sell its entire 100 percent stake in Overnite, if demand causes underwriters to fully exercise their right to buy more shares.
Schmitt said Overnite would likely get a higher valuation from investors than Roadway was getting from Yellow. Saying Overnite had better profit margins than Roadway, he estimated Union Pacific would net cash after bankers fees and other payments of $500 million to $700 million.
The business consists of Overnite Transportation Co. and Motor Cargo Industries, which employ 14,400 people combined, according to a preliminary prospectus filed with the U.S. Securities and Exchange Commission (news – web sites).
For the first quarter, Overnite reported a 3 percent rise in net income to $9.3 million, while revenue increased 10 percent to $341.2 million.
The company has 208 service centers and other assets, such as some 6,000 tractors and 21,000 trailers, worth about $1 billion, according to the prospectus.
UNION PACIFIC SEES CONDITIONS RIGHT FOR IPO
Union Pacific is spinning off Overnite because of a stronger IPO market, the end of a Teamsters strike against the unit last fall and a better outlook for shared-load truckers, spokeswoman Kathryn Blackwell said.
After years of weak prices and tepid demand, less-than-truckload carriers have enjoyed generally rising earnings since the collapse last September of Consolidated Freightways.
Consolidated, then the No. 3 less-than-truckload hauler with some 15 percent of capacity, was a fierce discounter blamed for aggravating pricing already enfeebled by slow economic growth in the fragmented, $23 billion sector.
Blackwell would not disclose how Union Pacific plans to use the IPO proceeds. Analyst Schmitt said the company is likely to use the money to pay off debt.
In the afternoon, shares of Union Pacific, which has rail operations in 23 states, were 6 cents lower at $60.65 in generally down trading on the New York Stock Exchange.
Overnite said in government filing it expected to pay a dividend after the IPO and to trade on the Nasdaq under the symbol “OVNT.”