Union Pacific to Spin Off Overnite

Railroad giant Union Pacific Corp. said Monday that it would sell its Overnite trucking unit in an initial public offering timed to exploit an improved cargo-hauling market and Wall Street optimism.

Omaha-based Union Pacific did not disclose the expected price of the IPO, but a regulatory filing said Overnite’s book value was about $600 million on Dec. 31. One analyst estimated Union Pacific might realize $500 million to $700 million from the IPO after expenses.

The planned spinoff of Richmond, Va.-based Overnite, which generated $1.35 billion in revenue last year, comes just weeks after its two biggest rivals in shared-load trucking agreed to merge. On July 8, Yellow Corp. said it would pay about $1 billion for Roadway Corp.

Union Pacific’s plan comes at a time when Wall Street values and haulage rates are picking up for “less-than-truckload” companies, which carry cargoes of 10,000 pounds or less, said analyst Kirk Schmitt of money management firm Victory Capital. “It’s a business with few synergies for Union Pacific, so it makes sense,” he said.

Union Pacific said it hoped to sell its entire stake in Overnite, if demand causes underwriters to fully exercise their right to buy more shares. Schmitt said Overnite probably would get a higher valuation from investors than Roadway was getting from Yellow. Saying Overnite had better profit margins than Roadway, he estimated Union Pacific would net cash after bankers’ fees and other payments of $500 million to $700 million.

The business consists of Overnite Transportation Co. and Motor Cargo Industries, which employ 14,400 people combined, according to a preliminary prospectus filed with the Securities and Exchange Commission.

For the first quarter, Overnite reported a 3% rise in net income to $9.3 million while revenue increased 10% to $341.2 million.

The company has 208 service centers and other assets, such as about 6,000 tractors and 21,000 trailers, worth about $1 billion, according to the prospectus.

Union Pacific is spinning off Overnite because of a stronger IPO market, the end of a Teamsters strike against the unit last fall and a better outlook for shared-load truckers, spokeswoman Kathryn Blackwell said.

Shares of Union Pacific rose 39 cents to $61.10 on the New York Stock Exchange.