XPO

Business Context and Reporting Period

This Form 8-K, filed on September 9, 2015, reports that XPO Logistics, Inc. (XPO) entered into a definitive Agreement and Plan of Merger with Con-way Inc. (Con-way). The filing details the terms of a cash tender offer and subsequent merger, as well as the financing arrangements secured to fund the transaction.

Key Financial Metrics and Transaction Terms

• Offer Price: $47.60 per share of Con-way common stock, payable in cash.
• Financing Facility: A $2.025 billion senior secured second lien bridge credit facility committed by Morgan Stanley Senior Funding, Inc. (MSSF).
• Bridge Facility Terms:
  • Interest: LIBOR or ABR plus an initial margin of 350 basis points (LIBOR) or 250 basis points (ABR), increasing by 50 basis points every three months.
  • Maturity: 364 days after the Closing Date, with options for two six-month extensions.
  • Draws: Up to two draws; the second draw is capped at $445 million and restricted to repaying/refinancing existing Con-way indebtedness.
• Backstop Facility: A $415 million backstop for a new senior secured asset-based revolving credit facility if amendments to XPO's existing credit agreement are not effective prior to closing.
• Equity Consideration: No equity consideration is offered; the transaction is all-cash.

Material Changes and Transaction Structure

The filing announces a material change in XPO's capital structure and business scope through the acquisition of Con-way. The transaction structure involves:

1. Cash Tender Offer: XPO will commence a tender offer within 10 business days of the agreement date. The offer must remain open for a minimum of 20 business days.
2. Merger: Following the tender offer, a merger subsidiary will merge with Con-way under Section 251(h) of the Delaware General Corporation Law, requiring no additional stockholder approval if a majority of shares are tendered.
3. Conditions to Closing: The transaction is subject to customary conditions, including regulatory approvals (Hart-Scott-Rodino), absence of legal restraints, and the tender of a majority of outstanding shares. It is not subject to financing conditions.
4. Employee Awards: Con-way equity awards will be converted to XPO awards or vested for cash consideration depending on vesting schedules and award types.

Guidance, Risks, and Contingencies

The filing contains forward-looking statements regarding the expected impact of the acquisition, including anticipated synergies and cost savings. However, the document explicitly states that actual results may differ materially due to various risks:

• Regulatory and Legal Risks: Failure to obtain requisite regulatory approvals or the imposition of legal restraints.
• Integration Risks: Challenges in integrating Con-way's operations, retaining key employees, and maintaining relationships with third-party transportation providers.
• Financial Risks: XPO's ability to raise debt and equity capital and the impact of the acquisition on XPO's results of operations.
• Operational Risks: Litigation regarding independent contractor classification, IT system implementation, and service disruptions due to weather or network changes.
• Contingencies: The bridge facility includes mandatory prepayment provisions if XPO receives net cash proceeds from debt/equity issuances or non-ordinary course asset sales.

Investor Verification Checklist

• Verify the final terms of the tender offer in the Schedule TO filing once the offer commences.
• Review the full text of the Merger Agreement (Exhibit 2.1) for specific representations, warranties, and termination fees.
• Monitor regulatory approval status, particularly under the Hart-Scott-Rodino Act.
• Assess XPO's ability to refinance the $2.025 billion bridge facility before maturity, given the increasing interest margins.
• Examine Con-way's financial statements and the Solicitation/Recommendation Statement (Schedule 14D-9) for details on Con-way's current indebtedness and operational health.