Union Pacific Will Acquire Overnite for $1.2 Billion

Transportation giant Union Pacific Corp., which operates the nation’s third-largest railroad, will acquire Overnite Transportation Co., a rapidly expanding trucking company, for $1.2 billion in cash, the companies said Thursday.

The combination will significantly strengthen Union Pacific’s freight moving operations and provide the New York-based company with the framework to expand its intermodal--sea, rail and truck--delivery system across the United States.

Union Pacific will pay $43.25 per share, nearly three times the book value of Overnite, which has about 27.7 million common shares outstanding. The deal’s announcement caused Overnite’s stock price to soar, rising $11.50 a share to close Thursday on the New York Stock Exchange at $42.50 a share. Union Pacific shares fell 75 cents on the NYSE to close at $56 a share.

Union Pacific operations, including the Missouri Pacific and Western Pacific railroads, are concentrated mainly in the West. Based in Richmond, Va., Overnite’s operations are predominately in the Great Lakes, Northeast and Southeast areas.

“Overnite will be a natural fit with our railroad subsidiaries,” William S. Cook, Union Pacific’s chairman, president and chief executive, said in a statement. He added that “there are substantial opportunities to utilize our existing rail system and customer base to support Overnite market growth and development in the West and Southwest.”

Overnite currently operates four terminals in California--Fresno, Los Angeles, Oakland and Sacramento. “With this new combination of rail and truck service, we’ll certainly add additional terminals in California,” Harwood Cochrane, Overnite chairman, said in a telephone interview.

Wall Street analysts said Union Pacific’s offer represents a diversification step that made sense for the company because of growing problems in the U.S. railroad industry.

Railroads have been hurt by overcapacity and loss of revenue from the troubled steel, grain and automobile sectors, which traditionally account for the bulk of rail freight. They also are under increasing competitive pressure to serve all of the customers in their delivery systems by relying on other modes of transportation such as trucking and shipping.

Operates in 33 States

While other truckers have faltered under deregulation, Overnite has thrived and now operates in 33 states and Washington, D.C. It is considered one of the most efficient short-haul trucking companies, partly because its non-union labor force keeps costs down.

“It’s a highly efficient, well-run carrier that has grown very rapidly,” said Thomas T. Taylor, who follows the trucking industry for Offutt & Taylor, a Baltimore investment research firm. “They’re able to be very price competitive. They have a good reputation.”