Trucking firm finds 'rich daddy' in deal with Yellow Freight


December 06, 1992|By Suzanne Wooton | Suzanne Wooton,Staff Writer

It is a classic corporate marriage, born of desperation and opportunity.

Preston Corp., the well-respected yet struggling trucking company situated in the cornfields of the Eastern Shore, weds Yellow Freight System Inc. of Delaware, a well-heeled industry giant that needs to become even mightier.

"Somebody said it's like a poor guy marrying a girl with a rich daddy," John Meyer, a dock worker at Preston's Glen Burnie terminal, said last week about Yellow Freight's recently announced plan to buy Preston.

For Preston, it is a chance to stay alive.

And the bargain-price acquisition -- $24 million in cash plus the assumption of sizable debt -- gives Yellow, a long-haul carrier, the opportunity to keep pace with its huge competitors in the growing short-haul regional market.

The deal, and others like it, illustrate the industry's continuing consolidation, which has been triggered by fierce competition. Since deregulation in 1980, thousands of small companies have sprung up, forcing truckers to fight for every scrap of revenue. For a decade, revenue per mile has been virtually unchanged; profits have shriveled.

Of the 50 largest U.S. carriers a decade ago, only nine are in business today, according to the American Trucking Association. Preston Corp., the nation's 15th largest, watched as industry leaders like McLean Trucking and Smith Transfer vanished.

Today, in the cutthroat trucking industry, where profit margins .. are razor thin, the strongest firms survive through acquisition -- and tough management. Preston will be expected to make some big changes.

"Preston's been given an opportunity. But they'll have to stand ,, on their own," said Linda George, a spokeswoman for Yellow, which is headquartered in Overland Park, Kan., a suburb of Kansas City.

For Mr. Meyer and other Preston employees, the critical questions become: How long does Preston have to become profitable, and what will it take?

And there are many other questions. Will the takeover bring merged operations in areas that overlap -- and layoffs among Preston's 5,700 workers? How will customers be affected? Will rates go up? Will Preston, backed by Yellow's hefty resources, start turning away some of its money-losing business?

"It's a good combination. But Yellow's going to have a tough time restoring Preston to profitability," said Doug Rockel, a transportation analyst for Merrill Lynch Global Securities in New York.

During the past four years, Preston has lost millions, due to the formidable combination of rate wars, high fuel prices and, most of all, the lingering recession, particularly in the Northeast corridor.

"Companies were folding one after another, but I thought that somehow we'd pull out of it," said David Haubner, a 37-year-old ** Preston driver and dock worker.

But last month, Preston, one of Maryland's largest and oldest publicly traded companies, said it didn't have enough money to operate on its own much longer.

Compared with Preston, Yellow is indeed the "rich daddy." With $2.3 billion in annual revenues, it is five times as large, operating nationwide with some 30,000 employees. And it makes money -- nearly $27 million last year alone.

The acquisition -- subject to approval by federal regulators and by stockholders -- could take two months to finalize. In the meantime, neither company is saying much about turnaround strategies.

According to Ms. George, Preston will become an autonomous, independent subsidiary with headquarters remaining at tiny Preston in Caroline County. The firm is one of the Eastern Shore's largest employers with 500 workers there. Another 215 work in Glen Burnie, plus 60 in Hagerstown and 350 in York, Pa.

Ms. George also said Preston's 82 terminals will continue to operate independently of Yellow's 613 nationwide.

Preston and Yellow are distinctly different kinds of carriers that, for the most part, do not compete with each other. They are both less-than-truckload companies that move several shipments in one trailer through various terminals where they are sorted and resorted, rather than going directly from shipper to receiver.

While they serve many of the same customers -- like Home Depot, 3M, Lever Brothers, Rubbermaid and McCormick -- Preston trucks take their freight an average of 350 miles, while Yellow goes an average of 1,200.

"The only difference Preston's customers will see is a financially stable company," said Ms. George.

But analysts say they could also see higher rates. Some shippers may have to look elsewhere for service.

"This financial backing from Yellow gives Preston the ability to drop some of its losing business," said Mr. Rockel.

And he said overlapping interstate routes between Northeast and Central states could ultimately provide an opportunity to save money by consolidating some operations.

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