FedEx to acquire Caliber for $2.4 billion Move aims to increase competition with UPS



Federal Express Corp., seeking to snatch more business from strike-weakened United Parcel Service, is buying the Caliber System Inc. trucking company for about $2.4 billion in stock.

The combination announced yesterday enables Federal Express to match UPS in offering a wide range of delivery options, from its trademark air express to the local-package traffic that Caliber handles.

The deal also illustrates how the once-humdrum business necessities of inventory control, distribution and delivery have become crucial elements in corporate efforts to achieve an advantage. More than ever, businesses are looking for one logistics service that can link its computer system to theirs to ensure that every shipment arrives at the moment needed.

Frederick W. Smith, chief executive of Federal Express and of the new parent company known as the FDX Corp., went so far as to say that the combined business would be best, not cheapest.

"More and more of our customers are utilizing transportation and logistics as strategic weapons and they want a broad array of services from a provider that can work with them," he said at a telephone news conference. "That's what this combination allows FDX Corp. to do better than our competitors."

Federal Express' traffic has risen 15 percent since the two-week UPS strike in August, and Caliber reports that its largest unit, RPS Inc., has grown about as much. By contrast, business at UPS is off 4 percent to 6 percent. UPS issued a statement yesterday saying that it was aware of the Federal Express move, but that UPS did not usually comment on what competitors did.

Caliber and RPS are not household words because they serve businesses, not households. But RPS considers its position vs. United Parcel akin to that of MCI vs. AT&T: a nimble, rapidly growing upstart able to seize a large chunk of an industry. RPS, operating through truckers who are independent contractors, specializes in carrying small packages between businesses at rates generally lower than those of UPS.

Unlike the situation at UPS, where drivers and package sorters are members of the Teamsters' union, the workers at RPS and Federal Express are not union members except for Federal Express pilots, who have an independent union.

Analysts agreed with the companies' executives that their businesses complemented each other.

"There are cost synergies and operations synergies," said Kevin C. Murphy, an analyst at Morgan Stanley, Dean Witter. In fact, their businesses had been converging, with Federal Express providing less expensive deferred deliveries and RPS providing second-day deliveries.

Federal Express plans to swap eight-tenths of a share, worth $63 based on its closing price Friday, for each Caliber share, a premium of nearly 14 percent over Caliber's closing price of $55.3125 Friday.

Analysts said Federal Express was getting a good buy. Still, its shares fell $3.50 yesterday, to $75.25. Caliber rose $3.9375, to $59.25. Federal Express' drop appeared to reflect short-selling by speculators who bet that the stock of corporate acquirers will decline as deals approach completion.

Although the UPS strike has given them a head start in capturing new business, Federal Express and Caliber executives said they had begun serious merger talks months before the walkout. Alan B. Graf, Federal Express' chief financial officer, said the recent rise in Federal Express shares made them more valuable as acquisition currency, though Caliber shares had risen as well.

The FDX parent company, which will continue to be based in Memphis, Tenn., will operate RPS and Federal Express as separate units. Though the operations will remain separate, sales representatives from both will begin looking for openings to involve their counterparts and to sell one another's services.

Caliber will close its headquarters in Akron, Ohio, offering jobs with FDX to the 150 employees there. There will be no other cutbacks, the companies said.

Pub Date: 10/07/97

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