Yellow Freight will pay $24 million for trucking firm

PRESTON CORP. TO BE SOLD

November 21, 1992|By Suzanne Wooton | Suzanne Wooton,Staff Writer

Preston Corp., one of Maryland's largest and oldest publicly traded companies, has agreed to be bought by the giant Yellow Freight System Inc. of Delaware in a $24 million cash deal that allows the troubled Eastern Shore trucking company to avoid bankruptcy.

In an agreement announced late yesterday, Yellow Freight also said it would repay $85 million of Preston's debts and replace $31 million in letters of credit.

The deal, announced after the market closed yesterday, would be worth $4.125 a share to Preston stockholders. Earlier, the company's stock had closed at $6.625 a share.

The deal, which is subject to approval of federal regulators and shareholders, would make Preston an autonomous subsidiary of Yellow. It was not immediately clear whether the acquisition would mean layoffs for Preston, which has been losing money steadily during the past three years.

"We cannot indicate the specific nature of changes. We intend to operate profitable companies," said Linda George, a spokeswoman for Yellow Freight System Inc. of Delaware, which despite its name is based in Overland Park, Kan. She said it could take more than two months to finalize the deal.

Preston has more than 5,700 workers, including about 1,000 in Maryland.

The agreement gives Yellow -- a vastly larger company, with $2.3 billion in revenues compared with Preston's $565 million -- a significant presence in the fast-growing regional short-haul trucking market.

Currently, Preston trucks travel an average of 300 miles per shipment, while Yellow carriers go an average of 1,000 miles.

While the deal would bail out the well-respected Eastern Shore company, it means Maryland would lose yet another corporate headquarters.

In the past decade, the state has witnessed an exodus of headquarters for corporations such as Equitable, First National and Union Trust banks, Maryland Casualty, Noxell, Arundel Corp., Eastmet and Maryland Cup.

Yesterday, Preston underscored its severe financial problems by saying that by mid-December it would not have enough cash to operate or pay the principal and interest on its loans. It said it would be in default of some loan agreements by the end of this month.

"The consummation of the Yellow tender offer will preserve the viability of Preston and provide a sound basis for effective operations, particularly at Preston Trucking Company in the future," William B. Potter, president of Preston Corp., said yesterday.

On the strength of its agreement with Yellow, the company has madearrangements with its lenders for interim credit to continue operating, Preston said.

Founded in 1932 in the small Caroline County town of Preston, Preston Corp. is a transportation-based holding company with three subsidiaries. It operates Preston Trucking Co., a unionized carrier in the Northeast and central states; Saia Motor Freight Line, a highly profitable non-union carrier operating in the South; and the Florida-based Smalley Transportation Co.

Preston Corp. has been losing money for three straight years. It recently reported a $1 million net loss for the third quarter as its primary subsidiary, Preston Trucking Co., continued to face difficult industry conditions.

Revenues from Saia, which Preston purchased in 1986, were used primarily to subsidize Preston Trucking. Two years ago, the company closed two subsidiaries, including one in Hurlock, Md., that employed 500 workers.

Last December, the company restructured its loans and lines of credit. With revenues still down this year, it hired Goldman, Sachs & Co. in August to look for a buyer.

Company officials say they were unable to overcome pressures created by industry deregulation in the early 1980s and the recession that hit in the 1990s.

One of the oldest trucking companies in the U.S., Preston initially operated out of an old can factory. As it grew to 151 pieces of equipment by the mid-1930s, it adopted the nickname "151 line," a logo that still appears on the side of its trailers.

The company, which calls it employees "associates", was once listed among the "100 best companies to work for in America."

"It's a sweetheart of a company to deal with," Phillip Del Costello, president of Local 557 of the International Brotherhood of Teamsters, which represents drivers at Preston. "Just too many things have been going wrong at the same time."

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