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UPS to purchase Fritz
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January 10, 2001: 7:52 p.m. ET
World's largest transportation company buys international freight handler
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NEW YORK (CNNfn) - In a move to expand the international services it can offer customers, United Parcel Service Inc. said Wednesday it will acquire Fritz Cos. Inc., a freight forwarder and customs broker, for about $450 million in UPS stock.
Each Fritz share will be exchanged for 0.2 shares of UPS.
The purchase price was a premium of 74 percent from the Tuesday closing prices for the two companies' stock. UPS (UPS: Research, Estimates) closed Wednesday down $2.50 at $58.50, while Fritz (FRTZ: Research, Estimates) closed up $4.38 at $11,41, just below the value of one-fifth of a UPS share.
 UPS officials said the deal was the kind of transaction that led them to have an initial public offering in November, 1999, so that they would have publicly-traded stock with which to complete a deal. While the world's largest transportation company could easily have paid cash for a $450 million purchase, Lynn Fritz, the chairman and CEO who holds about 36 percent of Fritz's outstanding shares, told analysts that he would not have done the deal if it had been all cash.
A freight forward arranges transportation of its customers' cargo on other companies planes or ships, gaining efficiency by buying space for more than one customer at a time. Fritz concentrates almost exclusively on international rather than domestic freight movements.
While Fritz business will be small compared to UPS' overall revenue, company officials and analysts say it is a good move for the company's efforts to offer a full range of freight services.
"This acquisition enhances UPS's strategy by providing comprehensive solutions across the supply chain at any point our customers desire, moving goods of any size, by any mode, anywhere in the world," said Joe Pyne, UPS' senior vice president.
But it is also a tricky business to buy into, as Fritz discovered when problems integrating different computer systems from a series of acquisitions it had made worldwide caused it to restate results and caused its stock to plunge in value. It has never completely recovered from that collapse.
 "We have done a tremendous amount of due diligence," said Norman Black, UPS spokesman, about the hazards of buying a freight forwarder. "We do not believe today's stock price at Fritz reflects the value of the company when integrated with UPS. We also believe while the company has gone through some difficult times, it has been solving the problems in exactly the right way."
Customs clearance, which was Fritz's original business and a sector where it is a leader worldwide, handles getting approval for freight to move across borders. About a 30 percent of its net revenue comes from customs clearance, and the largest single customs clearance customer is UPS competitor FedEx, which uses Fritz exclusively at three locations -- Memphis, Tenn., Anchorage, Alaska, and Oakland, Calif., where most of its overseas packages come into the United States.
FedEx issued a statement Wednesday that said it was already in discussions with Fritz about buying the customs clearance operations at those locations and that it would pursue a completion of that purchase. It said continuing to use Fritz after its purchase by UPS would be anti-competitive. FedEx officials would not comment if they had discussed a possible purchase of all of Fritz themselves.
Black said that UPS assumed the FedEx business would be lost during the negotiations and that was accounted for in the purchase price.
FedEx could lose some business in another manner, in that Fritz often buys space on FedEx planes to move freight overseas. While that space does not equal the potential gain of business that FedEx is expected to see in the agreement it announced Wednesday with the U.S. Postal Service, it did help fill out planes that FedEx flies anyway to handle its own customers' shipments.
UPS on Tuesday announced it was buying 60 cargo jets from Airbus Industrie for $6 billion to handle a push for more international business.
San Francisco-based Fritz has 400 facilities in more than 120 countries, had net income of $17.4 million on net revenue of $619.3 million for the fiscal year ended May 31. It grew primarily through a series of acquisitions of other forwarders worldwide.
UPS said the transaction is expected to not reduce earnings per share this year and should result in modest EPS gains starting in 2002. 
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