UPS to Take Over Coyote Logistics for $1.8B

In order to meet heightened shipping demand in the busy holiday season, United Parcel Service, Inc. UPS has decided to acquire Coyote Logistics for $1.8 billion, through both cash and debt. The company is expected to wrap up the deal in the next 30 days, subject to regulatory approvals. The buyout is expected to contribute operating synergies of nearly $100 million to $150 million to UPS’s financials next year.

Coyote Logistics, a unit of private equity firm Warburg Pincus, has strengthened its North American operations through a network of 35,000 contract carriers and a software platform designed to support the short-term trucking services of shipping companies. Notably, the company generated nearly $2.1 billion in revenues last year.

In 2013, UPS had failed to make timely parcel deliveries during peak holiday seasons. This dealt a heavy blow to the company’s reputation. Following this, the company stepped up its investments in 2014 to upgrade its air cargo network by means of adding more fuel-efficient aircraft. Moreover, the company recruited seasonal labors and also refused order overloads to ease pressure and facilitate timely deliveries.

Hence, we believe that the acquisition of Coyote Logistics is part of UPS’s strategy to enhance its operating efficiency during hectic seasons. Moreover, application of Coyote’s analytical tool will certainly help the packaging company to manage its order overloads better. Furthermore, Coyote has provided logistic support to UPS during peak seasons on several occasions, which will serve as an added advantage for United Parcel.

We also believe that the deal will not only enhance its service quality but will also lend it an edge over other logistic companies like FedEx Corp. FDX and Expeditors International of Washington Inc. EXPD.

Currently, UPS carries a Zacks Rank #2 (Buy). Another stock which also sports the same rank as United Parcel is Atlas Air Worldwide Holdings, Inc. AAWW.

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