Union Pacific Corp. (www.up.com), parent company of Union Pacific Railroad, plans to divest itself of Overnite Corp. (www.overnite.com), one of the leading national less-than-truckload carriers, through an initial public offering. The move reflects the findings of the Freight Pulse survey (see main article) that indicates a shift by shippers away from national LTLs in favor of truckload, regional LTL and intermodal.
This is actually Union Pacific’s second go-round at filing an IPO of Overnite; the company tried a similar venture in 1998, but finding market conditions unsuitable at the time, it withdrew the filing. Wall Street is looking with more favor these days on the national LTL marketplace, given that the bankruptcy of Consolidated Freightways and the merger of Yellow and Roadway has helped spike the valuations of the remaining LTL carriers in the marketplace.
Analysts believe the divestiture could net Union Pacific between $500 million and $700 million, after expenses. It would also allow the railroad to focus more heavily on its core business, while profiting from the current bullish outlook Wall Street has for the LTL carriers.
According to the Freight Pulse study, the Yellow-Roadway deal is not likely to remove much if any capacity from the LTL sector, and the Overnite deal is not expected to have any impact on capacity, either. Therefore, LTL customers should not expect to see significant rate hikes until industry tonnage levels demonstrate some sort of recovery, which Morgan Stanley doesn’t foresee happening in 2003.