May 30, 2006 12:00 PM, EDT

FedEx to Acquire Watkins Motor Lines for $780 Million

Sullivan to Step Down as Head of Ground Unit

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ackage carrier FedEx Corp. said Friday it planned to buy the less-than-truckload operations of Watkins Motor Lines and certain affiliates for $780 million.

Separately, FedEx announced that Daniel Sullivan, chief executive Officer of its FedEx Ground unit, will retire in January. Sullivan, 60, will be succeeded by FedEx Express Executive Vice President David Rebholz, 53.

FedEx said Watkins, based in Lakeland, Fla., will be re-branded FedEx National LTL and operate as a separate network within FedEx's LTL unit, FedEx Freight.

FedEx also will buy the assets of Watkins Canada Express, which will be re-branded as FedEx Freight.

FedEx said Watkins' management will remain in place, with Chip Watkins serving as president. He will report to Patrick Reed, executive vice president and chief operating officer of FedEx Freight, who has responsibility for all FedEx LTL operations in the United States.

Privately held Watkins generated about $1.2 billion in 2004. FedEx reported annual revenue of about $31.5 billion for fiscal 2005, of which FedEx Freight generated about $3.5 billion.

FedEx said it expects to close the deal in its first fiscal 2007 quarter, which would be by the end of August. FedEx said it does not expect the deal to have a material effect on its fiscal 2007 financial results.

News of a possible deal was first reported by the Memphis (Tenn.) Commercial Appeal newspaper last Sunday. (Click here for previous coverage.)

“This acquisition will extend our leadership position in the heavy freight sector and provide new growth opportunities for the business,” said Frederick Smith, chairman and chief executive officer of FedEx Corp. “Our customers have increasingly asked us to provide a broader range of transportation and supply chain services, and as a result of this acquisition, we will be in a better position to meet their expectations.”

“This acquisition is an opportunity to do more business with our current shippers and to target new customers with a comprehensive LTL solution — allowing us to grow faster than the industry in which we operate,” said Doug Duncan, CEO of FedEx Freight.

FedEx ranks No. 2 on the Transport Topics 100 listing of U.S. and Canadian for-hire carriers. Watkins is part of Watkins Associated Industries, ranked No. 21 on the TT 100.