NEW YORK (CNN/Money) -
United Parcel Service said Monday it will buy trucking company Overnite Transportation in a cash deal worth $1.3 billion.
The $43.25 a share price UPS (Research) will pay represents a hefty 46 percent premium from Overnite (Research)'s closing price of $29.58. It gives the world's largest transportation company a traditional trucking company that handles palletized shipments of freight, a segment of the industry known as less-than-truckload (LTL) trucking.
Shares of Overnite soared $12.87, or 43 percent, to $43.45 in late afternoon trading Monday following the premarket announcement. Shares of UPS climbed $1.09, or 1.5 percent, to $73.24.
UPS has been rumored to be looking at the LTL sector for more than a decade. Its main competitor, FedEx (Research), bought two former LTL carriers, which it has operated as FedEx Freight since 2001. That segment of the FedEx business has seen revenue grow by 23 percent and operating income climb by 58 percent during the first three quarters of its current fiscal year.
The LTL segment of trucking is less vulnerable to competition from new entrants than trucking companies that carry full trailers of freight directly from shipper to final destination, because the sorting of pallet-sized freight shipments requires an expensive network of terminals.
But the traditional unionized LTL carriers that once dominated the segment have seen increased competition and closures due to the growth of nonunion LTL carriers such as Overnite and FedEx Freight, as well as from package carriers such as UPS. It has also seen significant consolidation in recent years.
UPS could face criticism of the deal from its major union, the International Brotherhood of Teamsters, which has had a prolonged but largely unsuccessful organizing campaign at Overnite for the last decade. The union issued a statement saying it would closely monitor the purchase to ensure that work was not shifted away from UPS to the new nonunion operation.
"If this purchase helps UPS to continue to successfully compete in the global marketplace in the long run, it will increase our members' job security," said Ken Hall, the union's director of the UPS division. UPS is by far the largest Teamster employer.
The Teamsters called for a strike at the Overnite terminals it had organized starting in 1999, when Overnite was still a unit of railroad Union Pacific (Research). But the strike was largely ineffective and was eventually abandoned by the union.
The union's statement raised the hope that it could still win the right to represent Overnite workers.
"We are hopeful that UPS' long history as a company with Teamster representation will create new opportunities for Overnite workers to achieve their (union representation) goals," said Teamster General President Jim Hoffa in the union's statement.
Union Pacific bought Overnite in 1986 for $1.1 billion, but the company had a myriad of performance problems beyond its union unrest during the railroad's ownership. UP spun off Overnite through an initial public offering in 2003 that raised $475 million.