Con-way Inc. (NYSE:CNW) -- Con-Way Completes Offering and Dilutes Shareholders

Con-way Inc. (NYSE:CNW) is a California-based provider of transportation, logistics, and supply chain services for manufacturing, industrial, and retail industries. Last Wednesday, Con-way announced a secondary offering of 4.9 million shares, a roughly 10% dilution of its 49.7 million shares currently outstanding.

To look further into the consequences, we turn to Dan Amoss, Agora Financial’s expert on distressed companies…

“Unfortunately for Con-way (NYSE:CNW) shareholders, management spent $590 million between 2005-2007 buying back stock in the $45-50 range. Selling at $35 per share now (which is a generous price) crystallizes the destruction of shareholder value. The market didn’t like the announcement, sending the shares 7% lower in yesterday’s trading:

“Con-way’s use of proceeds from this offering — ‘working capital and capital expenditures’ — doesn’t sound like a compelling enough reason to dilute shareholders. This offering should ultimately raise roughly $160 million — enough to fund most of Con-way’s planned capital expenditures in 2010.

“Rather than fund capital programs out of cash flow, which could easily stress its debt ratios by year-end, Con-way management is taking the conservative route: keeping its balance sheet in healthier shape. It’s topping off its recently depleted cash balance: On March 31, the company held $461 million in cash, but it has since spent $200 million to pay off maturing debt and $35 million on new tractors under a capital lease agreement.

“To me, this corporate finance decision effectively says that Con-way doesn’t anticipate a robust rebound in 2010 earnings. Management is taking advantage of the stock’s lofty valuation to ride out this long recession in the ‘less than truckload’ industry without risking excessive depletion of shareholder capital.”

Amoss finds that the market is still not yet pricing CNW according to the harsh reality it faces. To keep up-to-date on this research — and to get actionable recommendations for Con-way and other companies — you should subscribe to Agora Financial’s Strategic Short Report. Dan Amoss edits the newsletter and it’s available through the reports page, found here.


Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

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