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Acquisition activity in the Western Canadian trucking industry and the importance of factors influencing.. 1970

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ACQUISITION ACTIVITY IN THE WESTERN CANADIAN TRUCKING INDUSTRY AND THE IMPORTANCE OF FACTORS INFLUENCING THIS ACTIVITY by IAN EARLE FRIER B.S.F., U n i v e r s i t y of B r i t i s h Columbia, 1966 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the F a c u l t y of Commerce and Business A d m i n i s t r a t i o n We accept t h i s t h e s i s as conforming to the re q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA March, 1970 In presenting th i s thes i s in pa r t i a l f u l f i lment of the requirements fo r an advanced degree at the Un ivers i ty of B r i t i s h Columbia, I agree that the L ibrary sha l l make i t f r ee l y ava i l ab le for reference and study. I fu r ther agree that permission for extensive copying of th i s thes i s fo r s cho la r l y purposes may be granted by the Head of my Department or by his representat ives. It is understood that copying or pub l i ca t ion of th i s thes i s f o r f i nanc ia l gain sha l l not be allowed without my wr i t ten permission. Department of Commerce and Business A d m i n i s t r a t i o n . The Univers i ty of B r i t i s h Columbia Vancouver 8, Canada ABSTRACT The Western Canadian Trucking Industry has been undergoing much a c q u i s i t i o n a c t i v i t y s i n c e 1950. Because of the growing importance of t h i s , i t i s e s s e n t i a l that the e f f e c t s on the performance of t r u c k i n g firms be f u l l y understood. This study i s meant to be an i n i t i a l i n q u i r y to document, and to i d e n t i f y the f a c t o r s that have been conducive to t h i s a c t i v i t y i n the Western Canadian Trucking Industry p r i n c i p a l l y f o r the time p e r i o d 1950-1968. This i n v e s t i g a t i o n was p r i n c i p a l l y conducted through the i n t e r v i e w technique. The sample of firms used i n t h i s study, although not a l l i n c l u s i v e , was g e n e r a l l y agreed among those interviewed to c o n s i s t of a l l the major t r u c k i n g firms a c t i v e i n a c q u i s i t i o n a c t i v i t y i n the Western Canadian Trucking Industry. Many f a c t o r s are i s o l a t e d as being conducive to t h i s a c t i v i t y . These f a c t o r s w e r e • i d e n t i f i e d p r i n c i p a l l y from current l i t e r a t u r e on the merger f i e l d g e n e r a l l y . The r e l a t i v e importance of these f a c t o r s i s di s c u s s e d . This study found that many of the a c q u i s i t i o n s that have taken place s i n c e 1950 were p r i n c i p a l l y to extend the route a u t h o r i t y and commodity base of o p e r a t i o n s . These are of a market-oriented type g e n e r a l l y t y p i f i e d by end-to-end a c q u i s i t i o n s designed to o f f e r b e t t e r s e r v i c e s . Most c o n s i s t of l a r g e r f i r m s a c q u i r i n g smaller t r u c k i n g f i r m s , u s u a l l y ones i n f i n a n c i a l d i f f i c u l t y . In almost a l l cases, the most v a l u a b l e asset of the acquired f i r m has been the route a u t h o r i t y . In p r a c t i c a l terms, i t was found that the only expedient way f o r a t r u c k i n g f i r m to expand was to purchase a d d i t i o n a l e x i s t i n g route a u t h o r i t i e s , s i n c e an a p p l i c a n t f o r a new route a u t h o r i t y must prove p u b l i c convenience and n e c e s s i t y to the r e g u l a t o r s . The environmental f a c t o r s i s o l a t e d i n t h i s study have been conducive to a c q u i s i t i o n a c t i v i t y . This a c t i v i t y occurred during periods of economic expansion when business expectations were g e n e r a l l y high and many firms were a v a i l a b l e f o r s a l e a f t e r i n c u r r i n g o p e r a t i n g d i f f i c u l t y during the preceeding r e c e s s i o n . The l e g a l f a c t o r was a l s o found to be s t r o n g l y conducive to t h i s a c t i v i t y . This was a t t r i b u t e d to the r e g u l a t o r y prac- t i c e s of r e s t r i c t i n g e ntry and r e l a t i v e l y easy approval of route a u t h o r i t y t r a n s f e r s . Much of the a c q u i s i t i o n a c t i v i t y was a t t r i b u t e d to the e x p l o i t - able s i t u a t i o n s that p r e v a i l e d a f t e r World War I I , the f o r t u i t o u s r a i l w a y s t r i k e of 1950 and completion of the Trans-Canada Highway. I t was a l s o found that many in d u s t r y f a c t o r s were conducive to the a c q u i s i t i o n a c t i v i t y . The t e c h n o l o g i c a l f a c t o r suggests that l a r g e r f i r m s have been d e s i r a b l e to provide the managerial and c a p i t a l base necessary to keep a f i r m c o m p e t i t i v e . The d i v e r s i f i c a t i o n f a c t o r suggests that many t r u c k i n g f i r m s d i v e r s i f i e d t h e i r geographic and commodity base to s t a b i l i z e e arnings, balance head and back h a u l s , and o f f e r b e t t e r s e r v i c e i n hopes of g a i n i n g more t r a f f i c . The i n d u s t r y i s s t i l l i n the e a r l y stage of the in d u s t r y l i f e c y c l e w i t h a few l a r g e r , f i n a n c i a l l y more s t a b l e f i r m s s u r v i v i n g the forces of com p e t i t i o n . This f a c t o r suggests that a c q u i s i t i o n a c t i v i t y should tend to slow down as the o p p o r t u n i t i e s f o r expansion and a c q u i s i t i o n become l e s s . Many small t r u c k i n g f i r m s , w i t h l i m i t e d management a b i l i t y , e i t h e r went bankrupt or recognized the need f o r the many s p e c i a l i z e d a b i l i t i e s necessary f o r s u r v i v a l and have tended to be acquired as a r e s u l t . The f i n a n c i a l f a c t o r tended to be conducive to the a c q u i s i t i o n a c t i v i t y as well.. Many s m a l l t r u c k i n g f i r m s have run i n t o a squeeze where they have not been able to p r o p e r l y f i n a n c e equipment and expansion and have tended to be acquired or go bankrupt. The sympathetic f a c t o r , where one c a r r i e r sees another expand s e r v i c e s through route a u t h o r i t y a c q u i s i t i o n and hastens to do l i k e w i s e , can a l s o be viewed as being conducive to t h i s a c t i v i t y . Economies of s c a l e were found to have l i t t l e e f f e c t on the a c q u i s i t i o n a c t i v i t y . Although evidence shows that there are no economies of s c a l e of f i r m s i z e , i t was suggested i n the d i s c u s s i o n that there may be economies of d e n s i t y , management, accounting, a d v e r t i s i n g and finance that tend to be conducive to a c q u i s i t i o n a c t i v i t y . TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION . ... 1 Ob j e c t i v e and Scope of Study 1 Importance of Study 2 D e f i n i t i o n s 3 Contents of Chapters 5 I I . FACTORS INFLUENCING MERGER ACTIVITY 7 B r i e f H i s t o r y of Merger A c t i v i t y i n North America ... 8 The F i r s t Merger Movement 9 The Second Merger Movement 9 The Recent Merger Movement 10 Environmental Factors 11 Business Cycle Factor 11 Legal Factor 14 Economic Disturbance Factor 15 I n d u s t r i a l C h a r a c t e r i s t i c s 16 Economies of Scale Factor 16 Te c h n o l o g i c a l Factor 17 D i v e r s i f i c a t i o n Factor 18 Industry L i f e Cycle Factor 19 Management Factor 22 F i n a n c i a l Factor 22 Sympathetic Factor 23 i i CHAPTER PAGE I I I . ACQUISITION ACTIVITY IN THE WESTERN CANADIAN TRUCKING INDUSTRY 25 D e f i n i t i o n of the Western Canadian Trucking Industry... 26 Growth of the Trucking Industry 27 Growth of Short and Medium Haul Trucking 32 Growth of Long Haul Trucking 3 2 . Documentation of A c q u i s i t i o n A c t i v i t y i n the Trucking Industry 33 Intermodal Ownership 45 Conglomerate Ownership 47 Trends In the A c q u i s i t i o n A c t i v i t y 50 IV. THE IMPORTANCE OF FACTORS INFLUENCING MERGER ACTIVITY IN THE WESTERN CANADIAN TRUCKING INDUSTRY . .' 52 Environmental Factors 52 Business Cycle Factor 52 Legal Factor 56 Economic Disturbance Factor 59 I n d u s t r i a l Factors 61 Economies of Scale Factor 62 Tec h n o l o g i c a l Factor 64 D i v e r s i f i c a t i o n Factor 66 Industry L i f e Cycle Factor 67 Management A b i l i t y 70 F i n a n c i a l Factor 71 Sympathetic Factor 73 V. CONCLUSIONS 75 BIBLIOGRAPHY 81 i i i LIST OF TABLES TABLE PAGE I . L o c a t i o n of Merger Peaks i n Seven Reference Cycle Expansions, 1918-1958 12 I I . I n t e r c i t y Ton-Miles Performed i n Canada by Type of C a r r i e r , 1938-1965 28 I I I . T o t a l and Average Assets and Revenues f o r Class I and Class I I C a r r i e r s (Common and Contract) 30 IV. D i s t r i b u t i o n of Gross Operating Revenues by Si z e of C a r r i e r f o r 1964 and 1965 A l l C a r r i e r s Reporting i n 1965 31 V. Number of Railway Cars Loaded i n Piggyback S e r v i c e i n Canada, 1958-1966 34 VI. Major Firms i n the Western Canadian Trucking Industry T h e i r H i s t o r y of A c q u i s i t i o n A c t i v i t y From 1950- 1969 and the Route A u t h o r i t y Acquired 36 V I I . A c q u i s i t i o n s W i t h i n the Western Canadian Trucking Industry by Year and Frequency, 1950-1969 53 V I I I . Percentage Growth i n Ton-Miles Performed i n Canada by Truck 68 CHAPTER I INTRODUCTION Merger a c t i v i t y has been i n c r e a s i n g s t e a d i l y s i n c e 1945 i n many i n d u s t r i e s i n North America. The t r a n s p o r t a t i o n f i e l d i s no e x c e p t i o n , w i t h much merger a c t i v i t y t a k i n g place i n the r a i l w a y , a i r l i n e and t r u c k i n g i n d u s t r i e s . Much a t t e n t i o n i s being d i r e c t e d toward the e f f e c t s that such merger a c t i v i t y w i l l have on the performance of firm s i n these i n d u s t r i e s . O b j e c t i v e s and Scope of Study The o b j e c t i v e of t h i s t h e s i s i s to document the a c q u i s i t i o n a c t i v i t y i n the Western Canadian Trucking Industry p r i n c i p a l l y i n the time pe r i o d 1950-1968, and to i d e n t i f y the f a c t o r s that have been condu- c i v e to t h i s a c q u i s i t i o n a c t i v i t y . The t h e s i s w i l l proceed from the general to the p a r t i c u l a r w i t h the f i r s t step being the i d e n t i f i c a t i o n of f a c t o r s which are l i k e l y to be r e l e v a n t to the l e v e l of a c q u i s i t i o n a c t i v i t y . The f a c t o r s found l i k e l y to be r e l e v a n t , as discussed i n Chapter I I , have been i s o l a t e d from the a v a i l a b l e l i t e r a t u r e on merger a c t i v i t y g e n e r a l l y and tend to be somewhat t h e o r e t i c a l i n nature. The balance of the t h e s i s acts as a case study. The p r i n c i p a l s e c t i o n of t h i s t h e s i s deals w i t h the documentation"of the a c q u i s i t i o n a c t i v i t y that has taken place s i n c e 1950 i n the Western Canadian Trucking - 2 - Industry. This documentation was conducted through personal interviews wi th knowledgeable persons assoc iated with the t ruck ing indus t ry . These interviews permitted the Author to f i nd out what s p e c i f i c a c q u i s i t i o n a c t i v i t y had taken place s ince 1950, some s i g n i f i c a n t trends and a f e e l for the r e l a t i v e importance of the i d e n t i f i e d fac tor s in causing th i s a c q u i s i t i o n a c t i v i t y . D i scuss ion w i l l be genera l ly d i rec ted toward the f o r - h i r e por t i on of the industry as def ined i n Chapter I I I . The sample of f irms used in th i s thes i s represent a large part of the t o t a l a c q u i s i t i o n a c t i v i t y . This sample, although not a l l i n c l u s i v e , was genera l ly agreed among those interviewed to cons i s t of a l l the major t ruck ing firms ac t i ve in a c q u i s i - t i o n a c t i v i t y . This sample can be assumed to represent adequately the current trends in a c q u i s i t i o n a c t i v i t y . The interv iew r e s u l t s are p a r t i c u l a r l y accurate for those f irms domic i led in B r i t i s h Columbia and become less accurate for f irms located i n the p r a i r i e prov inces , due to time and money r e s t r a i n t s surrounding th i s study. Some of the a c q u i s i t i o n a c t i v i t y i n the p r a i r i e provinces tends to have been found randomly in current l i t e r a t u r e and through the interviews conducted. Importance of the Study The t ruck ing industry is extremely complex, embracing f irms of widely d i f f e r e n t operat ing types whose only common denominator is the over the road movement f unc t i on . The s i z e and complexity of the industry create d i f f i c u l t problems of regu la t i on and management that demand - 3 - understanding of the i n d u s t r y ' s b a s i c a t t r i b u t e s and r e l a t i o n s h i p s . One of the areas of i n q u i r y that merits s u b s t a n t i a l a t t e n t i o n i s that of a c q u i s i t i o n s . This area of study i s c l e a r l y v i t a l f o r management planning and f o r r e g u l a t i o n as i t a f f e c t s the performance of the firms i n the i n d u s t r y . The ti m i n g of t h i s study i s important as the N a t i o n a l T r a n s p o r t a t i o n Act d e a l i n g w i t h t r u c k i n g has as yet not been implemented. An understanding of what has happened and why i t has happened should a i d i n e s t a b l i s h i n g the proper course f o r f u t u r e r e g u l a t i o n . There has been l i t t l e l i t e r a t u r e accumulated on the t r u c k i n g i n d u s t r y ' s b a s i c a t t r i b u t e s . Any study of t h i s nature should be a c t i v e l y encouraged w i t h hopes that i t w i l l add some i n f o r m a t i o n about a very complex and i n t e r e s t i n g i n d u s t r y . Before proceeding w i t h the o u t l i n e of each Chapter's contents, c e r t a i n d e f i n i t i o n a l problems must be c l a r i f i e d . D e f i n i t i o n s During the course of the author's f i e l d study, c o n s i d e r a b l e looseness of ex p r e s s i o n was found i n the use of words normally a s s o c i a t e d w i t h merger a c t i v i t y . In an attempt to c l a r i f y the meanings of words used i n t h i s t h e s i s , the f o l l o w i n g d e f i n i t i o n s w i l l be presented. To begin w i t h , a true merger i s when one c o r p o r a t i o n or more i s absorbed i n t o an e x i s t i n g c o r p o r a t i o n . When the t r a n s a c t i o n i s consumated, the separate e x i s t e n c e of the absorbed f i r m ceases. A common analogy i s when two r i v e r s f l o w together, each w i t h a separate name., they become - 4 - combined under the name of the l a r g e s t r i v e r . In.comparison, an amal- gamation i s the o r g a n i z a t i o n of a new c o r p o r a t i o n f o r the purpose of absorbing two or more companies. In the process, the e x i s t i n g companies are v o l u n t a r i l y e x t i n g u i s h e d and the new e n t i t y takes over the other companies' l i a b i l i t i e s and property. A new c o r p o r a t i o n i s not created by a merger, but an amalgamation, or c o n s o l i d a t i o n as i t i s o f t e n c a l l e d , always creates one. An a c q u i s i t i o n , on the other hand, i s one company's purchase of another's t o t a l or c o n t r o l l i n g i n t e r e s t , u s u a l l y i n the form of stock. The subsequent o p e r a t i o n of the purchased company i s u s u a l l y operated as a separate d i v i s i o n or s u b s i d i a r y . An a c q u i s i t i o n i s a l s o one company buying another company's assets and the acquired f i r m goes out of e x i s t e n c e without r e t a i n i n g any bartered i n t e r e s t i n the buyer. There are other words commonly used which d e s c r i b e the d i r e c t i o n o f merger a c t i v i t y . The f i r s t i s a h o r i z o n t a l u n i f i c a t i o n , which brings under one roof two or more companies i n the same general f i e l d of commerce or which produce the same products or s e r v i c e s . The o b j e c t i v e here i s to g a i n dominance i n the f i e l d and/or economies i n a d m i n i s t r a t i o n , a d v e r t i s i n g , p r o d u c t i o n , d i s t r i b u t i o n and so on. A v e r t i c a l u n i f i c a t i o n i s one which combines v a r i o u s companies which have a supplementary r e l a t i o n s h i p . A v e r t i c a l u n i f i c a t i o n can be described as one where a s u p p l i e r acquires a customer or a customer acquires a s u p p l i e r or a source of supply. The o b j e c t i v e s here are production economies, greater c o n t r o l over s u p p l i e s and markets, s t a b i l i t y of earnings, and other reasons. Another form of u n i f i c a t i o n that has become a common day word i n - 5 - current l i t e r a t u r e i s the conglomerate u n i f i c a t i o n . By t h i s a company can c l u s t e r under i t s corporate c o n t r o l the most d i v e r s e kinds of a c q u i s i t i o n s imaginable. The o b j e c t i v e here i s f o r the component parts to g a i n proper f i n a n c i n g and management i n r e t u r n f o r the acquired company's income. Each a c q u i s i t i o n by a conglomerate c o r p o r a t i o n i s evaluated on i t s present and p o t e n t i a l p r o f i t a b i l i t y and i n r e t u r n assumes the c r e d i t s t a t u s of the a c q u i r i n g f i r m . The reader should be cautioned here that a h o r i z o n t a l , v e r t i c a l and conglomerate u n i f i c a t i o n can take the form of a merger, c o n s o l i d a t i o n or a c q u i s i t i o n depending on the s p e c i f i c u n i f i c a t i o n being looked a t . Due to the many p o s s i b l e uses of these words and combinations of meanings, the word 'merger' s h a l l be used as i t i s i n every day business p a r l e n c e , to mean any type of inter-company u n i f i c a t i o n . Other words w i l l be used i n s p e c i f i c instances throughout the t h e s i s and they should be i n t e r p r e t e d as s p e c i f i c a l l y defined i n t h i s s e c t i o n . For example, the word ' a c q u i s i t i o n ' i s g e n e r a l l y used i n r e l a t i o n to the t r u c k i n g i n d u s t r y . Most of the u n i f i c a t i o n s i n t h i s i n d u s t r y have been the purchase of the assets w i t h the acquired f i r m going out of e x i s t e n c e or the purchase of another company's t o t a l or c o n t r o l l i n g i n t e r e s t w i t h the subsequent o p e r a t i o n o f the purchased company u s u a l l y operated as a s u b s i d i a r y or separate d i v i s i o n . Content of Chapters Chapters I I , I I I and IV c o n s t i t u t e the main chapters of t h i s t h e s i s . Chapter I I , a f t e r a b r i e f d i s c u s s i o n of the h i s t o r y of merger a c t i v i t y i n - 6 - North America, w i l l i s o l a t e those f a c t o r s which are l i k e l y to be r e l e v a n t when st u d y i n g the cause of a c q u i s i t i o n a c t i v i t y i n the Western Canadian Trucking I n d u s t r y . The f a c t o r s i s o l a t e d w i l l be broken down i n t o e n v i r o n - mental and i n d u s t r i a l f a c t o r s . The environmental f a c t o r s that w i l l be discussed are the business c y c l e , l e g a l and economic disturbance f a c t o r s . The i n d u s t r y f a c t o r s t h a t * w i l l be discussed i n Chapter I I are economies of s c a l e , d i v e r s i f i c a t i o n , t e c h n o l o g i c a l , i n d u s t r y l i f e c y c l e , management, f i n a n c i a l and sympathetic f a c t o r s . Chapter I I I w i l l p r i n c i p a l l y be concerned w i t h the documentation of the a c q u i s i t i o n a c t i v i t y that has taken place i n the i n d u s t r y s i n c e 1950. A d i s c u s s i o n of the growth of the t r u c k i n g i n d u s t r y w i l l a l s o be presented i n t h i s chapter. The chapter w i l l conclude w i t h a b r i e f d i s - c u s s i o n of the trends that are developing i n t h i s a c q u i s i t i o n a c t i v i t y . Chapter IV w i l l present a d i s c u s s i o n of the r e l a t i v e importance of the f a c t o r s i s o l a t e d i n Chapter I I i n causing the a c q u i s i t i o n a c t i v i t y . The c o n c l u s i o n s w i l l be presented i n Chapter V. CHAPTER I I FACTORS INFLUENCING MERGER ACTIVITY The o b j e c t i v e of t h i s chapter i s to i d e n t i f y f a c t o r s l i k e l y to be r e l e v a n t when stud y i n g the cause of merger a c t i v i t y i n the Western Canadian Trucking Industry. This chapter tends to be t h e o r e t i c a l i n nature, b a s i c a l l y d e r i v e d from current l i t e r a t u r e on the merger t o p i c . The e x i s t i n g l i t e r a t u r e , although vague p e r t a i n i n g to the i s o l a t i o n of under- l y i n g f a c t o r s conducive to merger a c t i v i t y , does o f f e r some i n s i g h t i n t o such a study. The f a c t o r s i d e n t i f i e d as conducive to merger a c t i v i t y are meaningfully broken down i n to environmental f a c t o r s l i n k e d to the economy g e n e r a l l y and i n d u s t r i a l f a c t o r s which are more p a r t i c u l a r to the c o n d i t i o n s e x i s t i n g i n some i n d u s t r i e s . Merger a c t i v i t y appears to be a r e a c t i o n w i t h i n an i n d u s t r y to changes i n the environmental and i n d u s t r y f a c t o r s . Firms, i n a d e s i r e to improve p r o f i t s , r e a c t to the c o n d i t i o n s which e x i s t at a p a r t i c u l a r time. Mergers appear to be a more ap p r o p r i a t e s o l u t i o n at some times more than at o t h e r s . When c o n d i t i o n s are favo u r a b l e , c e r t a i n f i r m s i n an in d u s t r y i n i t i a t e changes i n corporate s t r u c t u r e which are considered necessary to permit s u c c e s s f u l and e f f e c t i v e c o m p etition i n the f u t u r e . Before s t a r t i n g to di s c u s s the environmental and i n d u s t r i a l f a c t o r s , a b r i e f h i s t o r i c a l review w i l l be presented of merger a c t i v i t y i n North America. - 8 - B r i e f H i s t o r y of Merger A c t i v i t y i n North America The f i r s t merger a c t i v i t y can be traced back to a few years before 1889. Since t h i s time many i n d u s t r i e s have shown a w i l l i n g n e s s to s e i z e promising growth o p p o r t u n i t i e s whether t h i s be through merger a c t i v i t y or through i n t e r n a l growth. This e x p a n s i o n i s t philosophy has expressed i t s e l f i n the form of three d i s t i n c t periods of h i g h merger a c t i v i t y . The three periods were 1889-1903, 1926-1930 and 1945 to the present. The F i r s t Merger Movement, 1889-1903 The e a r l y merger movement was e v i d e n t l y a s s o c i a t e d w i t h important contemporary l e g a l and i n s t i t u t i o n a l changes, i n p a r t i c u l a r the emergence of the conglomerate co r p o r a t i o n s (or h o l d i n g companies as they were commonly c a l l e d ) and the development of a strong and well-developed c a p i t a l market. The c a p i t a l market s u p p l i e d the resources f o r expansion. A l e g a l change i n the l a t e 1880's, p e r m i t t i n g one c o r p o r a t i o n to own another, a f f o r d e d the o p p o r t u n i t y f o r conglomerate co r p o r a t i o n s to form near monopolies i n many of the b a s i c i n d u s t r i e s . An example i s Standard O i l Company, incorporated i n 1809, which was e s s e n t i a l l y a r e o r g a n i z a t i o n of an e x i s t i n g conglomerate. The Second Merger Movement, 1919-1927 The f i r s t merger movement which was c h a r a c t e r i z e d by the formation of near monopolies i n many b a s i c i n d u s t r i e s gave way to much merger a c t i v i t y p r i n c i p a l l y i n a h o r i z o n t a l and v e r t i c a l d i r e c t i o n designed to strengthen a firm's p o s i t i o n i n an expanding market economy. These mergers were much smaller than those i n the f i r s t merger pe r i o d and were - 9 - d e s c r i b e d as piecemeal a c q u i s i t i o n s designed mainly to expand the operations of the f i r m . ^ A good example of the type of merger a c t i v i t y t hat p r e v a i l e d at t h i s time i s given i n the o i l i n d u s t r y . The great crude o i l s u p p l i e s which were brought i n t o e x i s t e n c e during the 1920's, l a r g e l y as a r e s u l t of f o r t u i t o u s d i s c o v e r i e s , f o s t e r e d much new competition at the producing l e v e l of the i n d u s t r y and caused many crude o i l producers to i n t e g r a t e forward i n t o r e f i n i n g , marketing and t r a n s p o r t a t i o n a c t i v i t i e s as a means of s e c u r i n g and a s s u r i n g an o u t l e t f o r t h e i r p r o d u c t i o n . ^ This type of merger a c t i v i t y continued u n t i l the s p e c t a c u l a r f a i l u r e of some of the p u b l i c u t i l i t y empires p r e c i p i t a t e d a l a c k of confidence i n the stock market and heralded the depression of the 1930's. The Recent Merger Movement, 1945 - The recent merger movement owes i t s beginning to the c o n d i t i o n s that p r e v a i l e d a f t e r World War I I . In the mid-1940's, a high business expectations p r e v a i l e d and there was a strong d e s i r e to r a p i d l y overcome shortages of raw m a t e r i a l s , management t a l e n t , production and d i s t r i b u t i o n f a c i l i t i e s to meet the extremely h i g h l e v e l of demand that e x i s t e d a f t e r the war. The petroleum i n d u s t r y again gives a good example of t h i s r e a c t i o n . The very great expansion of demand f o r many petroleum products A. D. H. Kaplan, "The Current Merger Movement Analyzed," Harvard Business Review, May-June, 1955, p. 93. 2 J . G. McLean, "How Corporations Grow," Harvard Business Review, November-December, 1954, p. 86. - 10 - created severe shortages both of crude o i l and r e f i n e d products, which prompted both r e f i n e r s and marketers to i n t e g r a t e backwards as a means of a s s u r i n g and p r o t e c t i n g t h e i r source of supply.^" F o l l o w i n g c l o s e behind t h i s postwar p e r i o d was an emergence from the s e l l e r ' s market that p r e v a i l e d i n t o a market where companies had to become i n c r e a s i n g l y conscious of the need to improve t h e i r c o m petitive p o s i t i o n s . The d e s i r e to s t a b i l i z e output and earnings was a l s o prevalent i n many i n d u s t r i e s that had narrow product l i n e s subject to seasonal or c y c l i c a l f l u c t u a t i o n s . The d e s i r e to s u r v i v e caused many firms to adopt a d i v e r s i f i c a t i o n philosophy i n the l a t e 1940's and e a r l y 1950's, a philosophy which i s s t i l l s t r o n g l y entrenched i n the business community today. An i n c r e a s i n g i n f l u e n c e i n the North American Economy has been the appearance of the conglomerate c o r p o r a t i o n . A recent study showed that conglomerate mergers, i n a m i n o r i t y twenty years ago, have come to account f o r a m a j o r i t y of a l l mergers i n the United States i n the l a t e 1960's. A l s o observed i n t h i s study was the f a c t that v e r t i c a l and h o r i z o n t a l u n i f i c a t i o n s are decreasing as a percentage of t o t a l merger a c t i v i t y i n 2 the United S t a t e s . The above h i s t o r i c a l review, although cursory i n nature i n d i c a t e s that c e r t a i n c o n d i t i o n s e x i s t e d i n the past that were favourable to merger 1 I b i d . , p. 87. 2 G i l b e r t Burck, "The Merger Movement Rides High," Fortune, February, 1969, pp. 79-83. - 11 - a c t i v i t y at d i f f e r e n t time periods.- The next s e c t i o n of t h i s chapter w i l l attempt to i d e n t i f y f a c t o r s which are conducive to periods of merger a c t i v i t y and that are l i k e l y to be r e l e v a n t when studying a c q u i s i t i o n a c t i v i t y i n the Western Canadian Trucking Industry. Environmental Factors There appear to be f a c t o r s conducive to merger a c t i v i t y which are c l o s e l y a s s o c i a t e d to general economic c o n d i t i o n s that p r e v a i l at any one time. The f a c t o r s to be discussed here are the business c y c l e , l e g a l and economic disturbance f a c t o r s . The f i r s t to be discussed w i l l be the business c y c l e . Business Cycle Factor A recent p u b l i c a t i o n pointed out that each of the three h i s t o r i c periods of increased merger a c t i v i t y c o i n c i d e d w i t h periods of general economic p r o s p e r i t y . Peak years i n the number of business u n i f i c a t i o n s were 1920, 1926, 1929 and i n the 1960's. Lows i n merger a c t i v i t y occurred d u r i n g the depression of the 1930's and the recess i o n s of the l a t e 1940's and 1950's.''' An e a r l i e r a n a l y s i s found that high periods of merger a c t i v i t y occurred during business c y c l e expansions and that peaks i n merger a c t i v i t y came at the two-thirds point i n reference to c y c l e expansions as 2 i l l u s t r a t e d i n Table I . Robert A. Short, Business Mergers: How and Why to Transact Them, P r e n t i c e - H a l l , 1967, p. 2. Ralph L. Nelson, "Business Cycle Factors i n the Choice Between I n t e r n a l and E x t e r n a l Growth," reported i n W i l l i a m W. A l b e r t s and J o e l E. S e g a l l , The Corporate Merger, The U n i v e r s i t y of Chicago Press, 1966, p.61. - 12 - TABLE I LOCATION OF MERGER PEAKS IN SEVEN REFERENCE CYCLE EXPANSIONS, 1918-1958 Month and Year o f Turning Points Duration of Ref. Expansion I n t e r v a l From Ref. Trough to Merger Peak Column (5) as a Percent of Column (4) Reference Trough Merger Peak Reference Peak (3) - (1) (2) - (1) (1) (2) (3) (4) (5) (6) 4/19 5/20 1/20 9 13 144 7/24 2/26 10/26 27 19 70 11/27 2/29 6/29 19 15 79 3/33 2/36 5/37 50 35 70 10/45 5/46 11/48 37 . • 7 19 8/45 '5/56 7/57 35' 21. 60 4/58 6/60 5/60 25 36 104 TOTAL 202 136 67 Source: Ralph L. Nelson, "Business Cycle Factors i n the Choice Between I n t e r n a l and E x t e r n a l Growth," reported i n W i l l i a m W. A l b e r t s and J o e l E. S e g a l l , The Corporate Merger, The U n i v e r s i t y of Chicago Press, 1966, p. 61. - 13 - One way i n which the business c y c l e a f f e c t s merger a c t i v i t y i s tha t d u r i n g periods o f c y c l i c expansion, business expectations i n c r e a s e . The v a l u e o f any p r o s p e c t i v e investment r i s e s and f a l l s w i t h the s t a t e of e x p e c t a t i o n s . During periods of business expansions, higher values may be placed on p r o s p e c t i v e mergers. A s s o c i a t e d w i t h t h i s i s the phychology of buying and s e l l i n g . A recent study suggests that a s e l l e r i s g e n e r a l l y more w i l l i n g to s e l l a f t e r he has had some g a i n and i s not s t i l l at the lowest e v a l u a t i o n of h i s h o l d i n g s . A buyer i s most l i k e l y to buy when he foresees a d d i t i o n a l gains."'" This would i n d i c a t e a peak i n the merger c y c l e , when the s e l l e r can look back and see h i s gains and the buyer can look ahead and see h i s f u t u r e g a i n s . An example of t h i s type of a c t i v i t y i s presented i n the current conglomerate c o r p o r a t i o n a c t i v i t y . I t can be argued that the modern conglomerate c o r p o r a t i o n e x i s t s i n periods of high e x p e c t a t i o n s . Con- glomerate c o r p o r a t i o n s p r e f e r a high stock p r i c e to earnings r a t i o to c a r r y out t h e i r expansion p l a n s . Only during an expansion of the business c y c l e i s there a high p r o b a b i l i t y that a d e s i r a b l y high stock p r i c e to earnings r a t i o would e x i s t . The business c y c l e f a c t o r a l s o a f f e c t s the a v a i l a b i l i t y of oppor- t u n i t i e s to merge. Many fir m s may run i n t o d i f f i c u l t y during a pe r i o d of low economic a c t i v i t y due to a depression i n t h e i r p r o f i t stream. I t may be that b a r g a i n purchases tend to e x i s t only during and a f t e r a pe r i o d of low economic a c t i v i t y . Such a low pe r i o d of economic a c t i v i t y 1 I b i d . , p. 68. - 14 - may s e r i o u s l y c u r t a i l expenditures on equipment and other necessary c o m p e t i t i v e t o o l s , and may make management look f o r merger o p p o r t u n i t i e s to a l l e v i a t e t h e i r p o s i t i o n . As economic c o n d i t i o n s improve, mergers tend to increase i n numbers. I t can be argued that t h i s i s p a r t l y e x p l a i n e d by the psychology of buying and s e l l i n g p r e v i o u s l y d i s c u s s e d . I t i s c l e a r that merger movements i n business c o i n c i d e w i t h expansions i n the business c y c l e . When there are downswings i n the business c y c l e , there i s a n o t i c a b l e f a l l i n g o f f of merger a c t i v i t y , and v i s a v e r s a . Legal Factor The l e g a l environment has a very i n f l u e n t i a l e f f e c t on merger a c t i v i t y . Changes i n the l e g a l environment can enable an abrupt s t a r t or stop to merger a c t i v i t y w i t h i n an i n d u s t r y . A good h i s t o r i c a l example of t h i s occurred during the f i r s t p e r i o d of increased merger a c t i v i t y from 1889-1903. The passing of the Sherman Act i n 1890 followed a long p e r i o d of p u b l i c outcry against the c o n c e n t r a t i o n of economic power i n t o g i a n t near monopoly e n t e r p r i s e s that t y p i f i e d the times. The Sherman Act was passed to prevent the formation of monopolies. S e c t i o n one p r o h i b i t e d any c o n t r a c t , combination, or conspiracy i n r e s t r a i n t of tra d e . S e c t i o n two p r o h i b i t e d monopolization or attempts to monopolize."'' The passing of t h i s Act g r a d u a l l y h a l t e d the formation of such l a r g e monopolies by merger, thus l e a d i n g to the n o t i c a b l e decrease i n merger a c t i v i t y by 1903. Arthur H. Dean, "Some S i g n i f i c a n t Aspects of the Law Concerning Mergers," An a r t i c l e reported i n American Management A s s o c i a t i o n , Report Number 4, Corporate Mergers and A c q u i s i t i o n s , 1957, p. 35. At present, a n t i t r u s t laws i n the United States and i n Canada f o r b i d merger a c t i v i t y which s u b s t a n t i a l l y lessens competition or tends to c r e a t e a monopoly. These laws have c o n t r i b u t e d to the e x i s t e n c e of the conglomerate c o r p o r a t i o n which cuts across i n d u s t r y boundaries i n such a way as not to l e s s e n competition or create a monopoly. The power of l e g a l changes are being f e l t by these conglomerate o r g a n i z a t i o n s p r e s e n t l y . The thr e a t of formal l e g i s l a t i o n to c u r t a i l the expansion by merger of conglomerate o r g a n i z a t i o n s has r e c e n t l y come to the f o r e - f r o n t i n the United S t a t e s . Just the t h r e a t of such l e g i s l a t i o n and the adverse p u b l i c i t y attached to i t has caused the stock market accep- tance of congomerate c o r p o r a t i o n stocks to d e c l i n e . This has a f f e c t e d the expansion plans o f many conglomerate o r g a n i z a t i o n s adversely and, when such l e g i s l a t i o n i s passed, could h e r a l d the end of the recent merger movement. Economic Disturbance Factor Economic disturbance can have a great d e a l of e f f e c t on merger a c t i v i t y . For example, the end of World War I I saw the business world i n c o n d i t i o n s conducive to merger a c t i v i t y . There was a need f o r r a p i d expansion i n pro d u c t i o n and marketing f a c i l i t i e s to e x p l o i t the h i g h demand f o r goods and s e r v i c e s a f t e r the war. I f firms were not f a s t enough i n developing the resources necessary to remain c o n p e t i t i v e , they would l i k e l y go i n t o bankruptcy. A recent study describes the merger a c t i v i t y i n the post war years running to the end of the 1940's as marked by a d e s i r e to overcome shortages and to acquire access to raw m a t e r i a l s as w e l l as f a c i l i t i e s f o r d i s t r i b u t i o n of the new products developed - 16 - during the war."*" Minor economic d i s t r u b a n c e s , such as a.prolonged s t r i k e , can cause e x p l o i t a b l e s i t u a t i o n s to e x i s t . I f an e x p l o i t a b l e s i t u a t i o n o c c u r s , i t i s h i g h l y l i k e l y that merger a c t i v i t y w i l l occur, much as d i d happen a f t e r World War I I . Such periods of economic realignment r e q u i r e s f i r m s to merge simply to develop the resources to remain c o m p e t i t i v e . I n d u s t r i a l C h a r a c t e r i s t i c s The preceeding d i s c u s s i o n points out that merger a c t i v i t y i s most l i k e l y to occur during periods of economic expansion w i t h i t s high l e v e l of business e x p e c t a t i o n s . This merger a c t i v i t y can be s t i m u l a t e d by an economic dist u r b a n c e l i k e World War I I , which provided the need f o r very r a p i d expansion. At the same time, such merger a c t i v i t y w i l l o n l y take p l a c e i f the l e g a l environment does not act as a c o n s t r a i n t . Merger a c t i v i t y a l s o appears to be c l o s e l y r e l a t e d to many f a c t o r s which are a s s o c i a t e d w i t h c o n d i t i o n s which e x i s t i n many i n d u s t r i e s . The f i r s t to be discussed w i l l be economies of s c a l e . Economies of Scale Factor I t i s apparent that there are many i n d u s t r i e s where s u b s t a n t i a l economies of s c a l e e x i s t . A t y p i c a l i n d u s t r y has s i z e of f i r m becoming s u c c e s s i v e l y more e f f i c i e n t up to some p a r t i c u l a r s i z e or range of s i z e s . A f t e r the most e f f i c i e n t s i z e or range of s i z e s of f i r m have A. D. H. Kaplan, "The Current Merger Movement Analyzed," Harvard Business Review, May-June, 1955, p. 95. - 17 - been reached, then firms become s u c c e s s i v e l y l e s s e f f i c i e n t as f i r m s i z e i n c r e a s e s . One s e n s i b l e reason why firms grow by merger i s to achieve economies of s c a l e . I f economies increase w i t h the s i z e of the f i r m they o f f e r a s t r o n g j u s t i f i c a t i o n f o r merger. I t can be argued that the optimum size''" of f i r m v a r i e s among i n d u s t r i e s and w i t h i n i n d u s t r i e s over time. In an i n d u s t r y where l a r g e i n c r e a s i n g returns to s c a l e are present, s m a l l firms cannot compete w i t h l a r g e r f i r m s , assuming no other advantages accrue to s m a l l f i r m s . Indus- t r i e s i n which l a r g e economies of s c a l e are present can be expected to show a r e l a t i v e l y more r a p i d change i n the average s i z e of f i r m through merger a c t i v i t y . I t i s a l s o l i k e l y that merger a c t i v i t y aimed at a c h i e v i n g economies of s c a l e w i l l be r a p i d at f i r s t and w i l l slow down as the s u r v i v i n g firms approach the optimum s i z e . I f economies of s c a l e e x i s t w i t h i n an i n d u s t r y , one would expect merger a c t i v i t y to take p l a c e . The r e l a t i v e strengths of t h i s merger a c t i v i t y would vary from i n d u s t r y to i n d u s t r y and over time w i t h i n an i n d u s t r y . T e c h n o l o g i c a l Factor Another v a r i a b l e which i s l i k e l y to a f f e c t merger a c t i v i t y i s technology. The i m p l i c a t i o n s of t e c h n o l o g i c a l change are that most indus- t r i e s witness an i n c r e a s i n g degree of t e c h n o l o g i c a l s o p h i s t i c a t i o n as the years go by. In the l a t e r years of an i n d u s t r y ' s l i f e , t e c h n o l o g i c a l Optimum s i z e means the most e f f i c i e n t of a l l s c a l e s that a f i r m can b u i l d . - 18 - advances would t y p i c a l l y become l e s s s i g n i f i c a n t . This would cause u n i t costs to be more d i f f i c u l t to reduce. . Many new products and s e r v i c e s enter the o l d e r i n d u s t r y ' s market, thus l e a d i n g to the d e s i r e by the o l d e r companies to p a r t i c i p a t e i n the newer r a p i d growth i n d u s t r i e s . Older f i r m s would t h e r e f o r e be expected to be a c t i v e i n merger a c t i v i t y . The i n c r e a s i n g degree of t e c h n o l o g i c a l s o p h i s t i c a t i o n leads to the need f o r more c a p i t a l - i n t e n s i v e production processes and more h i g h l y s p e c i a l i z e d personnel i n the o p e r a t i o n of the production process. Thus t e c h n o l o g i c a l s o p h i s t i c a t i o n tends to make l a r g e r corporations very a t t r a c t i v e as a source of c a p i t a l and management necessary to remain c o m p e t i t i v e . This would lead to a d e s i r e f o r merger or i n t e r n a l growth a c t i v i t y w i t h i n a young i n d u s t r y . In small r a p i d l y growing businesses where t e c h n o l o g i c a l change i s producing r a p i d product obsolescence, many firms go bankrupt or must s e l l out due to lack of adequate f i n a n c i n g and managerial a b i l i t y . This i s p a r t i c u l a r l y true i n i n d u s t r i e s where equipment, f o r example, may l a s t a s h o rt time and where new and b e t t e r equipment i s necessary to g i v e the same s e r v i c e as competition i s o f f e r i n g . I t can t h e r e f o r e be argued that when t e c h n o l o g i c a l change i s r a p i d i n a young i n d u s t r y , merger a c t i v i t y would tend to be h i g h . D i v e r s i f i c a t i o n Factor D i v e r s i f i c a t i o n i s a magic word i n the business world today and has been c l o s e l y l i n k e d w i t h recent merger a c t i v i t y s i n c e 1945. A recent study showed that although d i v e r s i f i c a t i o n i s a phenomenon of long s t a n d i n g , - 19 - there has been some a c c e l e r a t i o n i n the movement i n recent y e a r s . For example, i n a sample of 111 l a r g e manufacturing companies, the annual r a t e of entry i n t o new i n d u s t r i a l a c t i v i t y was 48.4 i n the p e r i o d 1929- 1939, 43.1 i n 1939-1950, and 107.8 i n 1950-1954. 1 The presence of the d i v e r s i f i c a t i o n d e s i r e a f f e c t s merger a c t i v i t y . Older f i r m s i n an i n d u s t r y , to ward o f f the contingency of decreasing p r o f i t margins i n main product l i n e s , w i l l c o n s t a n t l y seek to enter i n t o merger a c t i v i t y w i t h r a p i d growth i n d u s t r i e s . A l s o many firm s that s u r v i v e the e a r l y r a p i d growth of an i n d u s t r y , w i l l d e s i r e to d i v e r s i f y to s t a b i l i z e earnings and s a l e s . This acts as p r o t e c t i o n against d e c l i n e s i n t o t a l earnings that can r e s u l t from u n p r e d i c t a b l e changes i n the economy. The d e s i r e f o r d i v e r s i f i c a t i o n has grown q u i t e r a p i d l y i n the l a s t twenty y e a r s , and there are no signs of i t s u b s i d i n g w e l l i n t o the f u t u r e . Industry L i f e Cycle Factor The i n d u s t r y l i f e c y c l e hypothesis s t a t e s that most i n d u s t r i e s go through f a i r l y w e l l defined stages of development--the e a r l y stage, the m a t u r i t y stage and the stage of d e c l i n e . Each stage i s c h a r a c t e r i z e d by c e r t a i n c o n d i t i o n s which p r e v a i l . One of the f i r s t exponents of the i n d u s t r i a l l i f e c y c l e concept, describes the e a r l y stage as one of r a p i d l y expanding demand, numerous o p p o r t u n i t i e s f o r l a r g e p r o f i t s , and venture c a p i t a l e n t e r i n g the f i e l d . ^"Michael Gord, " D i v e r s i f i c a t i o n and I n t e g r a t i o n i n American Industry," ( P r i n c e t o n N.J.: P r i n c e t o n U n i v e r s i t y Press, 1962), reported i n W i l l i a m W. A l b e r t a and J o e l E. S e g a l l , The Corporate Merger, The U n i v e r s i t y of Chicago Press, 1966, p. 32. - 2 0 - Competition normally, though not always, i s r i f e . And as a r u l e , business m o r t a l i t y i s h i g h , and s u r v i v i n g c o r p o r a t i o n s l a y the foundation f o r success.^" A concomitant of r a p i d l y expanding demand i n a young i n d u s t r y i s u s u a l l y a high r i s k of bankruptcy. In a d e s c r i p t i o n of the automobile i n d u s t r y , i t was shown that between 1900 and 1908 more than 500 automobile companies went out of business e i t h e r by bankruptcy or merger. By 1917, 76 companies were a c t i v e i n the i n d u s t r y , but 10 produced three-quarters 2 of the t o t a l output. T y p i c a l l y , when one f i r m demonstrates that a s o l i d demand e x i s t s f o r a product or s e r v i c e , many immitators rush i n to c a p i t a l i z e on and h e l p c u l t i v a t e market growth. A f t e r much merger a c t i v i t y , bankruptcy and i n t e r n a l growth, a r e l a t i v e l y few firms take over a f a i r l y l a r g e percentage of a young i n d u s t r y ' s t o t a l volume of business. The m a t u r i t y stage i s c h a r a c t e r i z e d by a l e v e l l i n g o f f of demand and a growth r a t e l e s s than i n the e a r l y stage. The r e l a t i v e l y few firms that are c o n t r o l l i n g the l a r g e percentage of the i n d u s t r y ' s business at t h i s p o i n t have e s t a b l i s h e d a strong f i n a n c i a l p o s i t i o n . These firms have now been i n o p e r a t i o n long enough to have e s t a b l i s h e d a performance rec o r d which gives them access to bank f i n a n c i n g and to the e x t e r n a l c a p i t a l market at l e a s t to a l i m i t e d degree. ^"Julius Grodinsky, Investments, (New York: Ronald Press Co., 1953), p. 64. 2 Herman E. Kroose, American Economic Development (New York: P r e n t i c e - H a l l , Inc., 1955), pp. 357-369. reported i n Jerome B. Cohen and Edward D. Zinbarg, Investment A n a l y s i s and P o r t f o l i o Management (Richard I r w i n , Inc.,) 1967, p. 251. - 21 - The mature stage t y p i c a l l y c a l l s f o r a new k i n d of emphasis on competing more e f f e c t i v e l y . As t h i s philosophy takes h o l d , firms w i l l seek to f i n d cost reducing techniques. As the i n d u s t r y becomes more automated or c a p i t a l i n t e n s i v e , there i s a greater d e s i r e to p r o t e c t l a r g e investments through b e t t e r c o n t r o l over markets and supply of raw m a t e r i a l s . This stage w i l l b r i n g v e r t i c a l and h o r i z o n t a l u n i f i c a t i o n s to achieve lower cos t s and c o n t r o l . The o p p o r t u n i t i e s to reduce costs and expand markets e v e n t u a l l y become fewer and fewer. Firms are now e n t e r i n g the stage of d e c l i n e which i s c h a r a c t e r i z e d by reduced p r o f i t a b i l i t y on e x i s t i n g product l i n e s . Firms e n t e r i n g the stage of d e c l i n e would t y p i c a l l y enter i n t o a philosophy of extending t h e i r l i f e through merger w i t h more p r o f i t a b l e business ventures. I t i s h i g h l y l i k e l y that firms e n t e r i n g the d e c l i n e stage would have more l i q u i d assets than i n e a r l i e r stages. In an attempt to forego the stage o f d e c l i n e , these firms would seek to d i v e r s i f y i n t o the f i e l d s of r a p i d growth i n d u s t r i e s through merger. This a n a l y s i s p o i n t s out that the i n d u s t r y l i f e c y c l e w i l l play an important r o l e i n the amount and type of merger a c t i v i t y that w i l l take p l a c e . For example, i n the e a r l y stage there would be many mergers of l a r g e r dominant firms purchasing f i n a n c i a l l y weak and/or poo r l y managed sm a l l e r f i r m s . The stage of d e c l i n e would witness d i v e r s i f i c a t i o n i n t o h i g h growth i n d u s t r i e s to prolong the l i f e of the a c q u i r i n g f i r m . - 22 - Management Factor One of the major f a c t o r s l e a d i n g to a h i g h l e v e l of merger a c t i v i t y , e s p e c i a l l y during the r a p i d growth stage of development, i s the manage- ment f a c t o r . The i n i t i a l p r o p u l s i o n of a s m a l l f i r m i s s u p p l i e d by the s p e c i f i c a b i l i t y o f the owner--entrepreneur--manager. He may be a good salesman, t e c h n i c i a n or a good production man. His narrow a b i l i t i e s may be a l l that the f i r m needs to be s e l f - s u f f i c i e n t w h i l e i t i s s m a l l . As a f i r m grows i n s i z e , i t reaches an 'awkward age' when more i s needed than the dynamic f o r c e of one i n d i v i d u a l . s The very nature of an entrepreneur may be that he cannot work c l o s e l y w i t h other dynamic personnel nor delegate r e s p o n s i b i l i t i e s to o t h e r s . When the 'awkward age' i s reached, the owner may r e a l i z e that i t takes a f u l l range of managerial a b i l i t i e s to succeed. As a r e s u l t , such f i r m s are l i k e l y to merge w i t h other firms which complements strengths and weaknesses. More t y p i c a l l y , such a f i r m would s e l l out to l a r g e r f i r m s which can o f f e r the necessary mi s s i n g a b i l i t i e s . W ell managed fi r m s o f t e n look upon t h e i r p o o r l y managed a s s o c i a t e s as e x c e l l e n t o p p o r t u n i t i e s to acquire property at a b a r g a i n and to earn a quick r e t u r n on i t s managerial s k i l l . F i n a n c i a l Factor Although a f u n c t i o n of managerial a b i l i t y , many sm a l l firms experience f i n a n c i a l problems as they grow. The growth of a business has i t s own s p e c i a l f i n a n c i a l problems. As s a l e s i n c r e a s e , so does in v e n t o r y , accounts r e c e i v a b l e and cash requirements. The necessary - 23 - cash to run an expanding business may come from p r o f i t s or from borrowing. In the r a p i d growth stage of a bus i n e s s , p r o f i t s are l i k e l y to be s m a l l f o r many fir m s and borrowing d i f f i c u l t due to the f a i t h bankers u s u a l l y put on earnings r e c o r d s . I f the management does not a l l o w adequately f o r f i n a n c i n g replacement and expansion needs, the f i r m w i l l f i n d i t s e l f i n a squeeze. In most cases, a f i r m must s e l l out, go bankrupt or t r y p u b l i c f i n a n c i n g . This f i n a n c i a l f a c t o r leads to many mergers i n the r a p i d growth stage of an i n d u s t r y . Many fir m s i n the e a r l y stage of the l i f e c y c l e can only too c l e a r l y see the t h r e a t they face unless they have access to s u f f i c i e n t l y l a r g e pools of c a p i t a l to permit them to take advantage of expanding horizons i n t h e i r business--horizons that t h e i r competitors presumably can see a l s o . As a r e s u l t , many fir m s are anxious to s e l l so as to f r e e themselves of f i n a n c i a l r e s t r i c t i o n s that prevent f u t u r e expansion. Sympathetic Factor This p s y c h o l o g i c a l f a c t o r i s one p a r t i c u l a r i l y relevant to the snowballing e f f e c t which tends to increase merger a c t i v i t y once i t has s t a r t e d w i t h i n an i n d u s t r y . This f a c t o r i s based on a r e a c t i o n to remain competitive w i t h c o m p e t i t i o n . Once the f i r s t merger has taken place w i t h i n an i n d u s t r y , many firms tend to j o i n i n the merger wave out of f e a r of being l e f t at some competitive disadvantage. In a recent study of merger a c t i v i t y i n the United States r a i l w a y - 24 - i n d u s t r y , reference was made to t h i s sympathetic r e a c t i o n . ^ Many r a i l w a y s apparently j o i n e d the bandwagon out of fear of being dwarfed by surrounding super r a i l w a y s . A few of the mergers mentioned i n t h i s study apparently would not have taken place had not there been a p s y c h o l o g i c a l f e a r of being l e f t behind c o m p e t i t i v e l y . The environmental and i n d u s t r y f a c t o r s i d e n t i f i e d i n t h i s chapter tend to act as forces which, depending on t h e i r r e l a t i v e s t r e n g t h s , tend to be conducive to merger a c t i v i t y w i t h i n an i n d u s t r y . In Chapter IV, each of these f a c t o r s conducive to a c q u i s i t i o n a c t i v i t y i n the Western Canadian Trucking Industry w i l l be d i s c u s s e d . Before proceeding to t h i s d i s c u s s i o n , the next chapter w i l l document merger a c t i v i t y i n the Western Canadian Trucking Industry and d i s c u s s trends that are developing. Robert E. Gallamore, R a i l r o a d Mergers: Costs, Competition and the Future O r g a n i z a t i o n of the American R a i l r o a d Industry, Harvard U n i v e r s i t y , 1968, p. 369. CHAPTER I I I ACQUISITION ACTIVITY.IN THE WESTERN CANADIAN TRUCKING INDUSTRY The primary o b j e c t i v e of t h i s chapter i s to document the nature of a c q u i s i t i o n a c t i v i t y w i t h i n the t r u c k i n g i n d u s t r y . More s p e c i f i c a l l y , the f i r s t part of t h i s chapter w i l l d e f i n e the t r u c k i n g i n d u s t r y and dis c u s s the growth of the i n d u s t r y . The next part w i l l document the a c q u i s i t i o n a c t i v i t y that has taken place and w i l l d iscuss the h i s t o r y of intermodal and conglomerate ownership s e p a r a t e l y . This w i l l be fol l o w e d by a d i s c u s s i o n of trends that have developed i n t h i s a c q u i s i - t i o n a c t i v i t y . The documentation of a c q u i s i t i o n a c t i v i t y w i l l be p r i m a r i l y con- cerned w i t h the time period between 1950 to 1968. The a c q u i s i t i o n a c t i v i t y o f ten firms was documented and dated as a c c u r a t e l y as p o s s i b l e . A few other a c q u i s i t i o n s , some of which occurred p r i o r to 1950, mentioned i n the t e x t of t h i s chapter were obtained randomly i n in t e r v i e w s or i n current l i t e r a t u r e . The research was conducted through personal i n t e r - views w i t h executives i n the i n d u s t r y and other knowledgeable persons. The sample used was g e n e r a l l y agreed upon by a l l persons interviewed to in c l u d e a very l a r g e percentage of a l l the a c q u i s i t i o n a c t i v i t y that has taken place i n the i n d u s t r y . - 26 - D e f i n i t i o n of the Western Canadian-Trucking Industry D e f i n i n g the segment of the t r u c k i n g i n d u s t r y from which the sample of firms used i n t h i s t h e s i s were taken i s a d i f f i c u l t t a s k . This i s so because of the heterogenous nature of the t r u c k i n g i n d u s t r y and the la c k of i n f o r m a t i o n a v a i l a b l e about the t o t a l number of firms i n the t r u c k i n g i n d u s t r y , t h e i r route a u t h o r i t i e s and the nature of t h e i r o p e r a t i o n s . In geographic terms, western Canada w i l l be defined as that part of Canada west of Winnipeg. Probably the best d e f i n i t i o n a v a i l a b l e f o r the purposes of t h i s t h e s i s i s that of the f o r - h i r e t r u c k i n g i n d u s t r y . The f o r - h i r e t r u c k i n g i n d u s t r y i s concerned p r i m a r i l y w i t h i n t e r c i t y or highway t r a n s p o r t . Such operations as these firms c a r r y out w i t h i n c i t i e s or other t r a n s p o r t a t i o n centers are almost e x c l u s i v e l y the pick-up and d e l i v e r y s e r v i c e i n c i d e n t a l to i t s highway o p e r a t i o n . P r i v a t e t r u c k i n g i s excluded from t h i s t h e s i s as i t i s an a l t e r n a t i v e to f o r - h i r e s e r v i c e which some manufacturers and d i s t r i b u t o r s f i n d b e n e f i c i a l i n terms of lower c o s t s , b e t t e r s e r v i c e to customers and f a s t e r s e r v i c e to o f f - l i n e p o i n t s . The f o r - h i r e t r u c k i n g i n d u s t r y i s composed of both common and con t r a c t o p e r a t i o n s . Almost a l l the firms s t u d i e d had at l e a s t a small part of t h e i r business represented as con t r a c t operations w h i l e the bulk of t h e i r operations were common c a r r i a g e . Common c a r r i e r s are defined as those firms who hold themselves out to the general p u b l i c to engage i n the t r a n s p o r t of property over r e g u l a r or i r r e g u l a r routes . Contract c a r r i e r s are defined as those firms under c o n t i n u i n g c o n t r a c t s , w i t h one or a l i m i t e d number of persons or f i r m s , e i t h e r f o r the f u r n i s h i n g of - 27 - t r a n s p o r t a t i o n s e r v i c e s f o r the e x c l u s i v e use of each person s e r v i c e d or d i s t i n c t s e r v i c e designed to meet the needs of v a r i o u s customers.^" Growth of the Trucking Industry The t r u c k i n g i n d u s t r y i s s t i l l r e l a t i v e l y young and at i t s incep- t i o n was very l o c a l i n nature. During the 1920's entrepreneurs s h i f t e d from l i v e r y barn operations to t r u c k l i n e s . Most of the firms i n the i n d u s t r y i n the 1920's and 1930's were p r o p r i e t o r s h i p s , u s u a l l y f a m i l y run businesses. During the 1940's and 1950's, very r a p i d growth i n the i n d u s t r y witnessed the emergence of c l o s e l y h e l d c o r p o r a t i o n s which r e l i e d on f i n a n c i n g from a small number of wealthy i n d i v i d u a l s . Many of these firms s t i l l e x i s t e d w e l l i n t o the 1960's and only i n the l a s t few years has the i n d u s t r y s t a r t e d to move i n t o p u b l i c l y held c o r p o r a t i o n s . During t h i s t r a n s i t i o n stage i n the 1950's and 1960's, many firms who had access to s u f f i c i e n t f i n a n c i n g , expanded t h e i r geographic and commodity base i n response to changing requirements of s h i p p e r s . The i n d u s t r y today c o n s i s t s of r e l a t i v e l y few firms expressing dominance w i t h a l a r g e number of firms remaining as l o c a l o p e r a t i o n s . The l a r g e r firms are s t a r t i n g to develop a need f o r p u b l i c f i n a n c i n g , s p e c i a l i z e d management and more c a p i t a l i n t e n s i v e o p e r a t i o n s . The t r u c k i n g i n d u s t r y from 1938 to 1965 has undergone very r a p i d growth as shown by the change i n f r e i g h t t r a n s p o r t a t i o n patterns that have taken p l a c e . Table I I i n d i c a t e s that the percentage share of ton-miles ^Canada, Dominion Bureau of S t a t i s t i c s , Motor C a r r i e r F r e i g h t (Common and C o n t r a c t ) , Ottawa, Queen's P r i n t e r , 1966, p. 6. - 28 - TABLE I I INTERCITY TON-MILES PERFORMED IN CANADA BY TYPE OF CARRIER, 1938-1965 ( M i l l i o n s of Ton-Miles) O i l Gas Year R a i l Road Water A i r P i p e l i n e P i p e l i n e T o t a l 1938 26,835 1,515 24,267 1 55,618 1945 63,349 2,995 21,994 3 - - 88,341 1950 55,538 7,597 27.017 8 610 - 90,770 1955 66,176 10,248 34,348 31 12,302 - 123,105 1956 78.820 10,614 39,406 39 16,193 - 145,072 1960 65,445 13,841 36.869 43 17,226 6,414 139,838 1961 65,028 16,099 39,169 45 21,483 9,308 151,932 1962 67,937 16,585 42,720 49 24,295 11,710 163,296 1963 75,796 16,704 46,559 54 26,648 13,232 178,993 1964 85,033 18,181 54,164 64 28,072 15,307 200,776 1965 87,190 19,411 55,063 75 29,881 16,955 208,575 PERCENTAGE DISTRIBUTION 1938 51.0 2.9 46.1 - * - - 100.0 1945 71.7 3.3 25.0 - - 100.0 1950 61.2 8.4 29.7 ' - 0.7 - 100.0 1955 53.8 8.3 27.9 10.0 - 100.0 1956 54.3 7.3 27.2 11.2 - • 100.0 1960 46.8 9.9- 26.4 12.3 4.6 100.0 1961 43.3 10.6 25.8 14.2 6.1 100.0 1962 41.6 10.1 26.2 14.9 7.2 100.0 1963 43.4 9.3 26.0 14.9 7.4 100.0 1964 42.4 9 .0 27.0 14.0 7.6 100.0 1965 41.9 9.3 26.5 14.3 8.1 ioo :o *Less than one- tenth of one percent. Source : Canada , Dominion Bureau of S t a t i s t i c s , D a i l y B u l l e t i n , Feb. 13, Ottawa , Queen's P r i n t e r , 1967. - 29 - performed by the t r u c k i n g i n d u s t r y has increased r a p i d l y between 1938 and 1957 . Since 1957, the r e l a t i v e percentage share of t o t a l Canadian f r e i g h t ton-mile movement has remained r e l a t i v e l y s t a b l e w h i l e the absolute volume has continued to i n c r e a s e . The t r u c k i n g i n d u s t r y has made* t h i s advance at the expense of r a i l and water. E s p e c i a l l y i n the 1950's, there was a great deal of t r a f f i c s h i f t e d from r a i l to t r u c k . I t can be concluded that most of t h i s s h i f t has taken place and the i n d u s t r y i s now tending toward s t a b l e expansion as the economy grows. In f a c t , the r a i l w a y s are s t a r t i n g to compete more v i g o r o u s l y to r e g a i n some of the l o s t t r a f f i c . At the same time, p i p e l i n e s and e s p e c i a l l y a i r f r e i g h t continue to take an i n c r e a s i n g share of t o t a l ton-miles moved. A i r F r e i g h t i n p a r t i c u l a r i s now c a p t u r i n g some of the h i g h value t r a f f i c much the same way that t r u c k e r s have captured t h i s market from the r a i l w a y s . Accompanying the r a p i d growth i n volume of f r e i g h t moved by the t r u c k i n g i n d u s t r y has been a trend toward l a r g e r s i z e f i r m s . Table I I I i n d i c a t e s that the average s i z e of f i r m as measured by t o t a l assets increased by a f a c t o r of two from 1957 to 1966. Some of the growth can be a t t r i b u t e d to the a c q u i s i t i o n a c t i v i t y that has taken p l a c e . I t i s a l s o i n t e r e s t i n g to note that i n 1965, 4.8 percent of the firms obtained 72.7 percent of the gross o p e r a t i n g revenue r e p o r t e d . Table IV i l l u s t r a t e s that the l a r g e s t class''" of c a r r i e r had the fewest number of operators ''"Class I c a r r i e r s w i t h gross operating revenue of $500,000 and over Class I I " " " " " 11 $100,000-$499,000 Class I I I " " 11 " " " $20,000-$99,999 Class IV " " " 11 " " under $20,000 Source: Canada, Dominion Bureau of S t a t i s t i c s , Motor C a r r i e r F r e i g h t (Common and C o n t r a c t ) , Ottawa, Queen's P r i n t e r , 1966, p. 5. - 30 - TABLE I I I TOTAL AND AVERAGE ASSETS AND REVENUES FOR CLASS I AND CLASS I I CARRIERS (COMMON AND CONTRACT) (Thousands of D o l l a r s ) Year T o t a l Assets T o t a l Revenues Number of Firms Average Assets Average Revenue 1957 $155,534 $226,434 324 $ 480 $ 699 1958 162,936 245,437 341 478 720 1959 204,313 300,545 390 524 771 1960 218,975 306,243 354 619 865 1961 234,046 325,756 365 666 892 1962 259,350 328*413 382 679 860 1963 282,097 396,833 410 688 968 1964 284,721 421,662 405 703 1,041 1965 503,103 341,384 477 1,050 713 1966 551,584 373,830 548 1,006 682 Source: Canada, Dominion Bureau of S t a t i s t i c s , Motor C a r r i e r F r e i g h t (Common and C o n t r a c t ) , Queen's P r i n t e r , Ottawa. - 31 - TABLE IV DISTRIBUTION OF GROSS OPERATING REVENUE BY SIZE OF CARRIER FOR 1964 AND 1965 ALL CARRIERS REPORTING IN 1965 Clas s Number of Firms Percent Operating Revenue M i l l i o n s Percent Percent 1964 Revenue 1 2 3 4 206 492 1,107 2,528 4.8 11.4 25.2 58.2 $485.4 111.0 49.6 22.2 72.7 16.6 7.4 3.3 72.0 15.7 8.4 3.9 T o t a l 4,333 100.0 668.2 100.0 100.0 Source: Canada, Dominion Bureau of S t a t i s t i c s , Motor C a r r i e r F r e i g h t (Common and C o n t r a c t ) , Queen's P r i n t e r , Ottawa, 1965. - 32 - but by f a r the l a r g e s t amount of ope r a t i n g revenue. Class I and Class I I c a r r i e r s increased t h e i r share o f t o t a l revenue from 1964 to 1965. At the same time, Class I I I and Class IV c a r r i e r s had a decreased share of t o t a l revenues. This would i n d i c a t e a d i s t i n c t trend toward a higher l e v e l of c o n c e n t r a t i o n i . e . , a fewer number of fir m s g a i n i n g a l a r g e r share of t o t a l i n d u s t r y s a l e s . Growth of Short and Medium Haul Trucking The Royal Commission study on transportation''' found that a f t e r a r e l a t i v e l y slow growth i n the 1920's and 1930's, short and medium haul 2 t r u c k i n g expanded r a p i d l y i n the l a t e 1940's and 1950's. By 1960 i t was estimated that over three-quarters of the t r a f f i c w i t h i n a 300 to 400 m i l e h a u l range was being moved by t r u c k . In t h i s market the r a i l w a y s were undergoing s e r i o u s competitive d i f f i c u l t i e s to the type of door-to- door s e r v i c e being o f f e r e d by the t r u c k i n g i n d u s t r y . Growth of Long-Haul Trucking The growth of the long-haul s e c t o r of the t r u c k i n g i n d u s t r y has been f a i r l y recent as i t j u s t got i t s s t a r t i n 1950. Before 1950, poor highway f a c i l i t i e s and inadequate equipment formed the major o b s t a c l e s to the growth of t h i s sector of the i n d u s t r y . '''D. W. Carr and A s s o c i a t e s , T r u c k - R a i l Competition i n Canada, Report Reported i n the Royal Commission on T r a n s p o r t a t i o n , Ottawa, Queen's P r i n t e r , 1962, V o l . I l l , p. 10. 2 Short h a u l i s defined as a t r u c k movement w i t h i n the range of a s i n g l e d r i v e r s o p e r a t i o n (up to 400-500 m i l e s ) . Hauls beyond a 1,500 m i l e range are defined as s p e c i a l i z e d long-haul. Canada, Royal Commission on T r a n s p o r t a t i o n , Report. Ottawa, Queen's P r i n t e r , 1962, V o l . I l l , p. - 3 3 - The growth of long-haul t r u c k i n g was not easy i n i t s f i r s t f i v e years of e x i s t e n c e . A f t e r a short p e r i o d of e a r l y growth, long-haul t r u c k i n g met severe c r i s e s , the f i r s t of which was an outbreak of foot and mouth disease i n 1952 and 1953. This outbreak s e r i o u s l y a f f e c t e d the l u c r a t i v e back-haul i n dressed meat t r a f f i c to the East. Serious r e s - t r i c t i o n s were placed on the movement of meat t r a f f i c p a r t i c u l a r l y i n e n t e r i n g the United States as the Trans-Canada Highway was as yet not completed. A second c r i s i s occurred when the r a i l w a y s i n 1955 removed a r e s t r i c t i o n on mixing LCL"*" t r a f f i c to western Canada. This permitted LCL shipments to be mixed i n one car so as to o b t a i n the lower c a r - l o t r a t e . These two events s e r i o u s l y a f f e c t e d the p r o f i t s of the long-haul c a r r i e r causing many ba n k r u p t c i e s . S t a r t i n g i n 1957, piggyback shipments on the r a i l w a y were used by t r u c k i n g firms as a means of expanding. This r e q u i r e d only the purchase of a d d i t i o n a l t r a i l e r s . Table V shows that during the p e r i o d 1957 to 1960, the number of t r a i l e r s c a r r i e d by piggyback increased r a p i d l y . This r a p i d growth can be a t t r i b u t e d to an increase i n ownership of truck l i n e s by the r a i l w a y s and cost saving b e n e f i t s f o r the t r u c k i n g f i r m s to s w i t c h to the use of piggyback s e r v i c e . Documentation of A c q u i s i t i o n A c t i v i t y i n the Trucking Industry .The major.growth by a c q u i s i t i o n i n the t r u c k i n g i n d u s t r y has taken p l a c e s i n c e 1950, w i t h much of t h i s a c t i v i t y being i n the long-haul LCL means l e s s - t h a n - c a r l o a d . - 34 - TABLE V NUMBER OF RAILWAY CARS LOADED I N PIGGYBACK SERVICES IN CANADA 1958-1966 Year Number of Cars Loaded Piggyback T o t a l Cars Loaded Piggyback Loading Percent of T o t a l 1958 77,109 3,771,000 2.0 1959 133,929 3,843,900 3.5 1960 154,898 3,635,400 4.3 1963 199,416 3,632,559 5.5 1964 223,005 3,928,883 5-7 1965 232,178 3,980,793 5.8 1966 187,587 4,032,983 4.7 Source: Canada, Dominion Bureau 52-001, Queen's P r i n t e r of S t a t i s t i c s , , 1966. Catalogue Number - 35 - segment of the i n d u s t r y . Since t h i s development has been so recent and the number of f i r m s t a k i n g part i n t h i s a c q u i s i t i o n a c t i v i t y r e l a t i v e l y few, i t was p o s s i b l e to o b t a i n much of the h i s t o r y of t h i s a c q u i s i t i o n movement. Table VI l i s t s the firms s t u d i e d and the a c q u i s i t i o n a c t i v i t y undertaken by each one. The e a r l y developments i n long-haul t r u c k i n g were mainly pioneered on western routes between western and c e n t r a l Canadian p o i n t s . In the s p r i n g of 1950 at l e a s t two firms inaugurated t r u c k i n g operations between A l b e r t a and c e n t r a l Canada. These fi r m s had previous short and medium h a u l operations and expansion was r e l a t i v e l y easy. The f i r s t f i r m to f o l l o w t h i s path was M and P Transport L i m i t e d which began operations i n A p r i l , 1950 i n t e r p r o v i n c i a l l y between A l b e r t a , Ontario and Quebec. Two l a t e r a c q u i s i t i o n s elevated the s e r v i c e of M and P Transport Limited to a n a t i o n a l s c a l e . In 1965, M and P Transport Limited acquired P r a i r i e Mountain P a c i f i c L i m i t e d which operated from A l b e r t a to Vancouver. In 1966, the a c q u i s i t i o n of C o n t i n e n t a l Express Lines L i m i t e d added route a u t h o r i t i e s from A l b e r t a to Saskatchewan and Ontario to Manitoba. The second f i r m to enter the f i e l d was Midland Superior Express L i m i t e d i n September, 1950, w i t h operations i n t e r p r o v i n c i a l l y between A l b e r t a , Saskatchewan, Manitoba, Ontario and Quebec. Two subsequent a c q u i s i t i o n s of East-West Transport L i m i t e d and Empire Freightways L i m i t e d b u i l t up a Trans-Canada route network. The l a t e r a c q u i s i t i o n gave Midland Superior Express L i m i t e d route a u t h o r i t i e s from Winnipeg to Regina and i n t r a - p r o v i n c i a l l y i n Saskatchewan to Saskatoon, M e l f o r t , P r i n c e A l b e r t and North B a t t l e f o r d . This Trans-Canada route network a t t r a c t e d Canadian TABLE VI MAJOR FIRMS IN THE WESTERN CANADIAN TRUCKING INDUSTRY, THEIR HISTORY OF ACQUISITIONS FROM 1950-1969 AND THE ROUTE AUTHORITIES. ACQUIRED Canadian Freightways Limited 1967 - Hanson Transport Limited - route a u t h o r i t y i n t r a - p r o v i n c i a l l y w i t h i n O n t a r i o . 1965 - Eastern Asbestos L i m i t e d - route a u t h o r i t y from Ontario to Quebec. 1955 - Northern Freightways L i m i t e d - route a u t h o r i t y from Edmonton i n t o B r i t i s h Columbia to Prince Rupert and waypoints between Prince Rupert and Prince George. i 1950's Canadian Freightways was acquired by Consolidated Freightways Limited c\ i 1951 - C o n t i n e n t a l C a r r i e r s L i m i t e d - route a u t h o r i t y from Vancouver to Calgary. 1950 - Winquist C a r r i e r s L imited - route a u t h o r i t y from Edmonton to Calgary. 1948 - Harsden Kooler Transport Limited - route a u t h o r i t y from Edmonton to Calgary. 1942 - Canadian Freightways was formed from the amalgamation of the f o l l o w i n g two f i r m s : Chris Transport Limited - route a u t h o r i t y from Lethbridge to Coutts. Wilson Freightways L i m i t e d - route a u t h o r i t y from Calgary to Edmonton. Canadian Motorways Limited - Soo-Security 1957 - P r a i r i e P a c i f i c Transport Limited 1957 - Soo F r e i g h t l i n e s L imited 1956 - S e c u r i t y Storage Limited 1955 - Biggar Brothers Limited Canadian N a t i o n a l T r a n s p o r t a t i o n Limited 1966 - P i Chapman & Company Limited 1964 - Husband Transport Limited 1964 - Toronto-Peterborough Transport Company Limited 1963 - Empire Freightways Limited 1963 - Eastern Transport Limited 1963 - Hoar Transport Limited 1963 - Midland Superior Express Limited 1963 - East-West Transport Limited Motorways Limited i s the western d i v i s i o n . route a u t h o r i t y from Vancouver to A l b e r t a . route a u t h o r i t y i n t r a - p r o v i n c i a l l y i n Saskatchewan and A l b e r t a route a u t h o r i t y from Winnipeg to Edmonton and Calgary, route a u t h o r i t y from Winnipeg to Windsor and Toronto. route a u t h o r i t y throughout the Okanagan V a l l e y , the Cariboo country to P r i n c e George, Kamloops and Revelstoke. route a u t h o r i t y from Windsor through to Quebec, route a u t h o r i t y east of Hamilton. route a u t h o r i t y between Winnipeg, and Regina, Saskatoon, North B a t t l e f o r d , P r i n c e A l b e r t , M e l f o r t . route a u t h o r i t y i n t o Nova S c o t i a i n c l u d i n g Cape Breton I s l a n d . route a u t h o r i t y north of Toronto route a u t h o r i t y i n t e r p r o v i n c i a l l y from B.C. i n t o A l b e r t a , Saskatchewan, Manitoba, Ontario and Quebec. a s u b s i d i a r y of Midland Superior Express L i m i t e d . Canadian P a c i f i c Transport Company Limited 1965 - F. W. Loucks Trucking Services Limited 1957 - Smith Transport and S u b s i d i a r i e s Limited 1957 - Expressway Truck Lines Limited 1948 - F r i t z and Audette Truck Company Limited 1948 - Dinsdale Cartage and Storage Limited 1948 - Dench of Canada Limited 1947 - Is l a n d F r e i g h t Services Limited - 1947 - O.K. V a l l e y F r e i g h t Lines Limited G i l l I n t e r p r o v i n c i a l Truck Lines Limited 1967 - Bestway Freight L i m i t e d 1966 - P a c i f i c Inland Express Limited 1956 - Southern Fr e i g h t Lines Limited route a u t h o r i t y from Vancouver to P r i n c e George and Dawson Creek. route a u t h o r i t y from the A t l a n t i c seaboard to Winnipeg. route a u t h o r i t y from Vancouver through the Okanagan V a l l e y to Winnipeg. route a u t h o r i t y from S w i f t Current to Regina. route a u t h o r i t y from Brandon to Minnedosa. route a u t h o r i t y i n t e r p r o v i n c i a l l y i n t o B r i t i s h Columbia, West Kootenays and i n t r a p r o v i n c i a l l y i n A l b e r t a . Route a u t h o r i t y from Vancouver to Nanaimo plus a l l of Vancouver I s l a n d . route a u t h o r i t y through the Okanagan V a l l e y and i n t o the East Kootenays. route a u t h o r i t y from Manitoba to Ontario and Quebec. route a u t h o r i t y from B r i t i s h Columbia to A l b e r t a , Saskatchewan and Manitoba. This a c q u i s i t i o n added route a u t h o r i t y from Ontario to B r i t i s h Columbia but gave a base of o p e r a t i o n i n Onta r i o . Johnston Terminals Limited 1966 - Shorty's Transport Limited 1966 - West Coast F r e i g h t Limited 1962 - Merchants Cartage Limited 1962 - Bray's Cartage Limited 1962 - Heaney Cartage and Storage Li m i t e d Kingsway F r e i g h t l i n e s Limited 1950's Arrow Truck Lines Limited Gossett and Sons Truck Lines Limited Rice and Trimble Limited M and P Transport Limited 1965 - P r a i r i e Mountain P a c i f i c L i m i t e d 1966 - C o n t i n e n t a l Express Lines L i m i t e d route a u t h o r i t y from B r i t i s h Columbia i n t o A l b e r t a , Manitoba. route a u t h o r i t y from Nanaimo to Duncan, Port A l b e r n i , Countney, Campbell R i v e r , Gold R i v e r and Vancouver. This a c q u i s i t i o n added a heavy haul operations which extends throughout B r i t i s h Columbia. route a u t h o r i t y from V i c t o r i a to Vancouver. This a c q u i s i t i o n added a moving and storage o p e r a t i o n s i m i l a r to the one o f f e r e d i n Vancouver. t h i s a c q u i s i t i o n added a heavy haul o p e r a t i o n . route a u t h o r i t y from Manitoba to A l b e r t a . route a u t h o r i t y from A l b e r t a to B r i t i s h Columbia, CO route a u t h o r i t y from A l b e r t a to Vancouver. route a u t h o r i t y from A l b e r t a to Saskatchewan, Ontario to Manitoba. P u b l i c Freightways Limited 1968 - Coronation C r e d i t Corporation Limited 1965 - T and H Cariboo Transport Li m i t e d 1965 - Haney-Hammond T r u c k l i n e s Limited 1954 - Green Truck Lines Limited 1953 - Stevenson T r u c k l i n e s Limited 1951 - P u b l i c Freightways Limited nine, f i r m s : Anderson F r e i g h t l i n e s Limited C h i l l i w a c k Cartage Company Limited Crescent Beach Transfer Limited - Hume Tr u c k l i n e s Limited Lake F r e i g h t l i n e s Limited Surrey F r e i g h t l i n e s Limited Vanderspeck Tr a n s p o r t a t i o n Limited Winton's Transfer Limited White Rock Transfer Limited a conglomerate which took over f i n a n c i a l c o n t r o l of P u b l i c Freightways L i m i t e d . route a u t h o r i t y from Vancouver to Hope, W i l l i a m s Lake and L i l l o o e t s e r v i n g waypoints i n between. route a u t h o r i t y between Coquitlam and Haney. route a u t h o r i t y between H a r r i s o n Lake and Aggassiz. route a u t h o r i t y between Langley and C l o v e r d a l e . formed as a r e s u l t of the amalgamation of the f o l l o w i n g route a u t h o r i t y between Coquitlam and Haney. • route a u t h o r i t y i n C h i l l i w a c k . route a u t h o r i t y i n Crescent Beach area, route a u t h o r i t y i n Langley area. route a u t h o r i t y between H a r r i s o n Lake and Aggassiz. route a u t h o r i t y i n C l o v e r d a l e . • route a u t h o r i t y from Vancouver to Hope and P r i n c e t o n , route a u t h o r i t y i n Abbotsford area. route a u t h o r i t y i n White Rock area. Van-Kam Freightways Limited 1960 - White Transport Limited 1960 - Kamloops-Salmon Arm Freight- l i n e s Limited route a u t h o r i t y from Kamloops to Salmon Arm. route a u t h o r i t y from Kamloops to Revelstoke. o - 41 - N a t i o n a l Transport L i m i t e d to acquire Midland Superior Express L i m i t e d i n 1963. In the next few y e a r s , many other t r u c k i n g f i r m s jumped i n t o the i n d u s t r y . G i l l I n t e r p r o v i n c i a l Truck Lines L i m i t e d s t a r t e d operations i n 1952 as a one tr u c k o p e r a t i o n w i t h route a u t h o r i t y from Vancouver to Ontario p o i n t s . G i l l I n t e r p r o v i n c i a l Truck Lines Limited l a t e r acquired Southern F r e i g h t l i n e s L i m i t e d i n 1956. The a c q u i s i t i o n of t h i s Toronto based f i r m gave G i l l I n t e r p r o v i n c i a l Truck Lines Limited an ove r l a p p i n g route a u t h o r i t y from Ontario to B r i t i s h Columbia but added a base of operations i n On t a r i o . In 1966, G i l l I n t e r p r o v i n c i a l Truck Lines Limited acquired P a c i f i c Inland Express L i m i t e d which added route a u t h o r i t i e s from B r i t i s h Columbia i n t o A l b e r t a , Saskatchewan and Manitoba. In 1967, Bestway F r e i g h t L i m i t e d was acquired adding the missing route a u t h o r i t y between Manitoba, Ontario and Quebec to give G i l l I n t e r p r o v i n c i a l a trans-Canada route network which permitted s e r v i c e i n t o and out of a l l provinces between Quebec and B r i t i s h Columbia. In the mid-1950's, Soo-Security Trucking L i m i t e d was brought i n t o -Canadian Motorways L i m i t e d , a c o n s o l i d a t i o n of some 52 small Eastern Canad t r u c k i n g f i r m s . Soo-Security Motorways became, the Western d i v i s i o n w i t h i n t e r l i n e hook-up to the Eastern d i v i s i o n at Winnipeg. Soo-Security Motorways L i m i t e d i n 1955 acquired Biggar Brothers L i m i t e d which added — r o u t e -author i t y • f rom-W-inn-ipeg -to -Windsor and Toronto . -In 1956, S e c u r i t y Storage Limited-was - acquired adding route a u t h o r i t i e s from Winnipeg to Edmonton and Calgary. In 1957, S o o - F r e i g h t l i n e s L i m i t e d was acquired adding route a u t h o r i t y i n t r a p r o v i n c i a l l y i n Saskatchewan and i n t e r - p r o v i n c i a l l y i n t o A l b e r t a . To complete the fir m s Trans-Canada route - 4 2 r network, P r a i r i e P a c i f i c Transport L i m i t e d was acquired w i t h route a u t h o r i t y from Vancouver to A l b e r t a . Another Trans-Canada f i r m that was developed i n the mid-1950's was Kingsway F r e i g h t l i n e s L i m i t e d . This f i r m s t a r t e d as an i n t r a - p r o v i n c i a l o p e r a t i o n i n Ontario w i t h o p e r a t i n g a u t h o r i t y i n t o Quebec i n the year 1954. I t i s owned by Canadian Steamships L i m i t e d and was e s t a b l i s h e d to complement the parent companies sh i p p i n g operations on the Great Lakes. Kingsway F r e i g h t l i n e s L i m i t e d subsequently expanded t h e i r t r u c k operations to B r i t i s h Columbia through a c q u i s i t i o n s . Arrow T r u c k l i n e s L i m i t e d , p r i n c i p a l l y a heavy h a u l i n g o p e r a t i o n , was a c q u i r e d . The a c q u i s i t i o n of Gossett and Sons T r u c k l i n e s Limited added route a u t h o r i t i e s from Manitoba to A l b e r t a . The a c q u i s i t i o n of Rice and Trimble L i m i t e d completed the trans-Canada route network by adding route a u t h o r i t y from A l b e r t a to Vancouver. A f i r m which s t a r t e d operations i n 1950 as w e l l and which s p e c i a l - i z e s i n mainly long-haul operations from Vancouver to O n t a r i o , Quebec and Maritime p o i n t s i s D. S. Scott Transport L i m i t e d . This f i r m subsequently acquired R e i t m i e r T r u c k l i n e s L i m i t e d which operated from Vancouver to P r i n c e Rupert s e r v i n g waypoints west of and i n c l u d i n g Vanderhoof. Reitmier T r u c k l i n e s L i m i t e d , p r i o r to the a c q u i s i t i o n , i n t e r l i n e d a l u c r a t i v e f i s h backhaul to e a s t e r n Canada w i t h D. S. Scott L i m i t e d . Competitive pressure f o r t h i s t r a f f i c motivated t h i s a c q u i s i t i o n . Canadian Freightways L i m i t e d has developed operations i n western and eastern Canada through a c q u i s i t i o n . The company came i n t o e x i s t e n c e i n 1942 w i t h an amalgamation of C h r i s Transport L i m i t e d and Wilson - 43 - Freightways L i m i t e d both of A l b e r t a . The newly formed company, Canadian Freightways L i m i t e d , had route a u t h o r i t y from Edmonton south to Cout t s , . A l b e r t a . Two-small - a c q u i s i t i o n i n 1948,-Harsden Kooler Transport L i m i t e d w i t h route a u t h o r i t y between Edmonton and Clagary and Winquist Transfer L i m i t e d w i t h a s i m i l a r route a u t h o r i t y , e s t a b l i s h e d the firms i n t r a p r o v i n c i a l o p e r a t i o n a l base. In 1951, C o n t i n e n t a l C a r r i e r s L i m i t e d was acquired w i t h route a u t h o r i t y from Vancouver to Calgary. This a c q u i s i t i o n was.: the firms f i r s t step i n t o i n t e r p r o v i n c i a l t r u c k i n g . In the e a r l y 1950's, Canadian Freightways L i m i t e d was acquired by Consolidated Freightways L i m i t e d , p r e s e n t l y the l a r g e s t t r u c k i n g f i r m i n the United S t a t e s . In 1955, Canadian Freightways L i m i t e d acquired Northern F r e i g h t - ways L i m i t e d extending the fir m s route a u t h o r i t y from Edmonton i n t o B r i t i s h Columbia s e r v i n g P r i n c e Rupert and waypoints between P r i n c e Rupert and P r i n c e George. Two l a t e r a c q u i s i t i o n s were made i n Eastern Canada, Eas t e r n Asbestos L i m i t e d i n 1965 w i t h route a u t h o r i t y from Ontario to Quebec, and Hanson Transport L i m i t e d w i t h route a u t h o r i t y w i t h i n O n t a r i o . These l a t e r two a c q u i s i t i o n s have created a great d e a l of s p e c u l a t i o n as to when and w i t h whom Canadian Freightways L i m i t e d w i l l b r i d g e the gap between t h e i r e a s t e r n and western o p e r a t i o n s . Van-Kam F r e i g h t l i n e s L i m i t e d , a s m a l l i n t r a p r o v i n c i a l f i r m i n . B r i t i s h Columbia, acquired two sm a l l f i r m s i n response to economic development i n the Mica Dam area. In 1960, White Transport L i m i t e d w i t h route a u t h o r i t y from Kamloops to Salmon Arm was acq u i r e d . In the same year,'Kamloops-Salmon Arm F r e i g h t l i n e s L i m i t e d w i t h route a u t h o r i t y from Kamloops to Revelstoke was .acquiredTv V - 44 - Johnston Terminals L i m i t e d , s i n c e its i n c e p t i o n in 1913 as a l o c a l horse and buggy o p e r a t i o n , has developed i n t o a d i v e r s i f i e d s e r v i c e -company p r i n c i p a l l y through a c q u i s i t i o n s . Before 1962, Johnston Terminals Limited co-ordinated the s e r v i c e s of the f o l l o w i n g s u b s i d i a r i e s : Johnston National Storage L i m i t e d , Terminal Cartage L i m i t e d , Westminster Storage' and D i s t r i b u t i o n L i m i t e d , Brade Storage and D i s t r i b u t i o n L i m i t e d , Burke and Wood L i m i t e d , Red B a l l L i m i t e d and J . T. Se r i v e L i m i t e d , a l l o p e r a t i n g in the m e t r o p o l i t a n Vancouver market. Johnston Terminals made s e v e r a l a c q u i s i t i o n a f t e r 1962 to enlarge the t e r r i t o r y and commodity base of o p e r a t i o n s . In 1962, Heaney Cartage and Storage L i m i t e d , a V i c t o r i a based f i r m , gave Johnston Terminals -Limited a s i m i l a r moving and storage o p e r a t i o n to that which e x i s t e d i n Vancouver. In 1962, Bray's Transfer L i m i t e d of V i c t o r i a was acquired adding route a u t h o r i t y between Vancouver and V i c t o r i a . Merchants Cartage L i m i t e d was a l s o acquired i n 1962, adding a heavy ha u l s e r v i c e which operates throughout the province of B r i t i s h Columbia. Johnston Terminals Limited made one other a c q u i s i t i o n i n 1962. This was of Transco Se r v i c e s L i m i t e d which expanded the s e r v i c e o f f e r e d i n t o Calgary, Edmonton and Winnipeg. In 1966, West Coast F r e i g h t Limited^'a Nanaimo based f i r m was acquired to round out s e r v i c e on Vancouver I s l a n d . This a c q u i s i t i o n added route a u t h o r i t i e s from Nanaimo to Duncan, Port A l b e r n i , Courtenay, Campbell R i v e r , Gold R i v e r and Vancouver. Al s o i n 1966, the a c q u i s i t i o n of Shorty's Transport L i m i t e d , added a general f r e i g h t route a u t h o r i t y between B r i t i s h Columbia to A l b e r t a and Manitoba. - 45 - Intermodal Ownership Since the l a t e 1940's there has been much a c t i v i t y i n the owner- sh i p of t r u c k i n g f i r m s by other modes of t r a n s p o r t a t i o n . The f i r s t r a i l w a y entered i n t o the t r u c k i n g i n d u s t r y i n the l a t e 1940's but most of the r a i l w a y ownship came i n the mid 1950's. Canadian Steamships L i m i t e d entered the t r u c k i n g i n d u s t r y by a c q u i r i n g Kingsway F r e i g h t l i n e s L i m i t e d i n the mid 1950's. Recently, P a c i f i c Western A i r l i n e s has pur- chased a small t r u c k i n g f i r m i n A l b e r t a . Regional a i r l i n e s could be expected to u t i l i z e t r u c k s , p r i n c i p a l l y f o r pick-up and d e l i v e r y s e r v i c e , much the same way as do the r a i l w a y s . Large s h i p p i n g l i n e s that are c u r r e n t l y e n t e r i n g c o n t a i n e r i z a t i o n and a complete shipper-to-consignee t r a n s p o r t a t i o n p o l i c y , could be viewed as p o t e n t i a l entrants i n t o the t r u c k i n g i n d u s t r y . Canadian P a c i f i c Transport Company The Canadian P a c i f i c Railway was the f i r s t r a i l w a y to enter the t r u c k i n g f i e l d i n 1947. By the end of 1948, the Canadian P a c i f i c Railway had acquired f i v e t r u c k i n g f i r m s . At t h i s time, the acquired companies were g e o g r a p h i c a l l y separated and the f i r s t s e r i o u s attempt to hook-up these separate u n i t s occurred i n 1957. The a c q u i s i t i o n of Expressway T r u c k l i n e s L i m i t e d i n 1957 added route a u t h o r i t i e s from Vancouver through the Okanagan V a l l e y to the Kootenays and.into Calgary and Edmonton. This a c q u i s i t i o n hooked-up the operations of Dench of Canada L i m i t e d , F r i t z and Audette Trucking L i m i t e d , O.K. V a l l e y F r e i g h t l i n e s L i m i t e d and I s l a n d F r e i g h t S e r v i c e L i m i t e d . In 1957, Smith Transport and S u b s i d i a r i e s L i m i t e d were acquired - 46 - in e a s t e r n Canada making Canadian P a c i f i c Transport Limited the f i r s t t r u c k i n g company l i n k i n g between the two coasts of Canada. In 1965, J. W. Loucks Trucking S e r v i c e L i m i t e d was a c q u i r e d . This a c q u i s i t i o n added route a u t h o r i t y from Vancouver to P r i n c e George and Dawson Creek. This a c q u i s i t i o n i s i n t e r e s t i n g as i t had two major reasons f o r t a k i n g p l a c e . The f i r s t and more obvious reason was to gain access to the l u c r a t i v e market i n the P r i n c e George area. The second reason was that there were already four or f i v e t r u c k i n g firms s e r v i n g P r i n c e George and i n s t e a d of a p p l y i n g f o r a route a u t h o r i t y from the P u b l i c U t i l i t i e s Commission, Canadian P a c i f i c Transport found i t e x p e d i t i o u s to purchase the a u t h o r i t y . To o b t a i n an a u t h o r i t y from the P u b l i c U t i l i t i e s Commission, a f i r m must prove p u b l i c convenience and n e c e s s i t y . Because of the e x i s t i n g s e r v i c e i n the area at t h i s time, such proof would be extremely d i f f i c u l t and would a t t r a c t much o p p o s i t i o n from e x i s t i n g c a r r i e r s . Canadian N a t i o n a l Transport L i m i t e d The Canadian N a t i o n a l Railway was a l i t t l e slower than i t s r i v a l i n e n t e r i n g the t r u c k i n g i n d u s t r y on a b i g s c a l e . Presumably t h i s was because of the d i f f i c u l t y i n persuading the Federal Government to advance the necessary c a p i t a l . Many t r u c k e r s v o i c e d o p p o s i t i o n to p u b l i c funds being used to purchase t r u c k i n g firms that would compete against p r i v a t e e n t e r p r i s e . The Canadian N a t i o n a l Railway f i r s t entered the t r u c k i n g i n d u s t r y i n 1963. The f i r s t a c q u i s i t i o n made by the Canadian N a t i o n a l Railway was that of Midland Superior Express L i m i t e d i n 1963. This a c q u i s i t i o n - 47 - gave route a u t h o r i t i e s from B r i t i s h Columbia i n t o A l b e r t a , Saskatchewan, Manitoba, O n t a r i o , and Quebec. At the same time Canadian N a t i o n a l Transport L i m i t e d was very a c t i v e i n a c q u i r i n g t r u c k i n g f i r m s i n eas t e r n Canada. In 1963, Hoar Transport L i m i t e d of Ontario and Eastern Transport of the Maritimes were ac q u i r e d . In 1964, Toronto-Peterborough Transport Company Lim i t e d and Husband Transport L i m i t e d , both l o c a t e d i n eas t e r n Canada, were ac q u i r e d . The l a s t a c q u i s i t i o n made by Canadian N a t i o n a l Transport L i m i t e d was that of D. Chapman and Company L i m i t e d . This a c q u i s i t i o n added route a u t h o r i t y throughout the Okanagan V a l l e y , the Cariboo country to P r i n c e George, Kamloops and Revelstoke. The a c q u i s i t i o n of D. Chapman and Company Lim i t e d i s a good example of a manager-owner who saw b e n e f i t s i n being a c q u i r e d . In a recent d i s c u s s i o n about the reasons f o r the a c q u i s i - t i o n , the owner was concerned about i n c r e a s i n g competitive pressure on the f i n a n c i a l v i a b i l i t y o f the f i r m . Also discussed was the f a c t that the company would continue operations a f t e r the a c q u i s i t i o n as a separate e n t i t y , and that the f i r m had access to more c a p i t a l which would a l l o w i t to continue to grow and b u i l d new ter m i n a l s that are required.''' Conglomerate Ownership A very recent trend has been the a t t r a c t i o n of conglomerate cor- p o r a t i o n s i n t o the t r u c k i n g i n d u s t r y . A very i n t e r e s t i n g case h i s t o r y of D. Chapman, President and General Manager, D. Chapman and Company L i m i t e d , reported i n an a r t i c l e c a l l e d "Pioneer B r i t i s h Columbia Firm J o i n s C.N.'s Truck Family," Motor C a r r i e r , November, 1966, p. 22. - 48 - a company which was purchased by such an o r g a n i z a t i o n i s that of P u b l i c Freightways L i m i t e d . P u b l i c Freightways L i m i t e d , an i n t r a p r o v i n c i a l o p e r a t i o n i n B r i t i s h Columbia, was formed through amalgamation of nine f i r m s p r i n c i p a l l y l o c a t e d i n the Fraser V a l l e y r e g i o n . (See. Table V I ) . Three s m a l l a c q u i s i t i o n s were subsequently made expanding operations f u r t h e r i n the F r a s e r V a l l e y r e g i o n . Stevenson T r u c k l i n e s L i m i t e d i n 1953, Green T r u c k l i n e s L i m i t e d i n 1954 and Haney-Hammond T r u c k l i n e s L i m i t e d i n 1965 were ac q u i r e d . Vanderspeck T r a n s p o r t a t i o n L i m i t e d , one of the o r i g i n a l l y amal- gamated f i r m s , added route a u t h o r i t y from Vancouver to Hope and P r i n c e t o n . In 1965, T and H Cariboo Transport L i m i t e d was acquired adding route a u t h o r i t i e s from Vancouver to Hope, Wi l l i a m s Lake and L i l l o o e t . In December, 1968, P u b l i c Freightways was acquired by Coronation C r e d i t C o r p o r a t i o n L i m i t e d , a conglomerate c o r p o r a t i o n . The reason f o r the a c q u i s i t i o n was given to be to supply a d d i t i o n a l funds needed to f u r t h e r expand P u b l i c Freightways L i m i t e d , p a r t i c u l a r l y i n b i d d i n g f o r l a r g e r c o n t r a c t s where s u b s t a n t i a l c a p i t a l investment i n new equipment i s r e q u i r e d . The reason f o r choosing P u b l i c Freightways L i m i t e d was that i t i s a w e l l managed company i n an e s s e n t i a l and growing i n d u s t r y , o f f e r i n g a s o l i d investment o p p o r t u n i t y f o r Coronation C r e d i t C o r p o r a t i o n . ^ A p o l i c y of conglomerate c o r p o r a t i o n s appears to be to enter a growth i n d u s t r y and then to expand h o r i z o n t a l l y w i t h i n that i n d u s t r y . W. E. Donnelly, Vice P r e s i d e n t , Coronation C r e d i t L i m i t e d , r e p o r t e d i n an a r t i c l e c a l l e d "Pioneer Coast Employee-owned Line-Haul Now Part of New Conglomerate," Motor C a r r i e r , December, 1968, p. 11. - 49 - In e a r l y 1969, Coronation C r e d i t C o r p o r a t i o n acquired Rempel-Trail T r a n s p o r t a t i o n L i m i t e d of Edmonton, one of Western Canada's l a r g e s t b u l k c a r r y i n g f i r m s . Rempel-Trail T r a n s p o r t a t i o n L i m i t e d was formed i n Dawson Creek i n 1943. The company today hauls such wet and dry bulk products as gas and o i l , s a l t , a s p h a l t , l i m e , f e r t i l i z e r , seed g r a i n and chemicals. This a c q u i s i t i o n i s i l l u s t r a t i v e of h o r i z o n t a l spreading which can be expected from the conglomerate f i r m s . Another conglomerate c o r p o r a t i o n to enter the t r u c k i n g i n d u s t r y i s Neon Products of Canada L i m i t e d , which, i n September, 1968, acquired Reimer Express L i m i t e d of Winnipeg. A recent d i s c u s s i o n showed the p o l i c y of Neon Products of Canada Li m i t e d to be to move i n t o the s e r v i c e i n d u s t r i e s - - t h e food i n d u s t r y , communications, maintenance, b r o a d c a s t i n g , and t r a n s p o r t a t i o n . The o b j e c t i v e being to d i v e r s i f y i n t o companies w i t h b e t t e r than average growth p o t e n t i a l . * ' Reimer Express L i m i t e d has route a u t h o r i t i e s from Edmonton and Calgary east to Saskatchewan, Manitoba, Ontario and Quebec. A major s p e c u l a t i o n has been when and w i t h whom would Reimer Express Limited expand i t s operations to B r i t i s h Columbia. There were only two f i r m s w i t h a t t r a c t i v e route a u t h o r i t y p a t t e r n s , Hunt Transport Limited of Vancouver and P. L. P o r t e r Trucking L i m i t e d of Calgary. This s p e c u l a t i o n has r e c e n t l y disappeared as .Neon Products of Canada Limited announced plans of a c q u i r i n g Hunt Transport L i m i t e d . J . A. P a t t i s o n , P r e s i d e n t , Neon Products of Canada, reported i n an a r t i c l e c a l l e d "Reimer Purchased by Coast-based Conglomerate May A l t e r I n t e r l i n e s , " Motor C a r r i e r , September 1968, p. 15. - 50 - Another conglomerate a c q u i s i t i o n f o l l o w e d c l o s e behind the f i r s t two mentioned above. Trimac T r a n s p o r t a t i o n L i m i t e d of Calgary, Canada's bi g g e s t b u l k products h a u l e r , was acquired by United Westburne I n d u s t r i e s L i m i t e d , a Montreal plumbing and h e a t i n g w h o l e s a l e r . Trimac Transporta- t i o n L i m i t e d was formed out of an amalgamation of f i v e bulk commodity t r a n s p o r t e r s . These were H. M. Trimble and Sons Li m i t e d of Calgary, Maccam Transport Limited of Moose Jaw, O i l and Industry Supplies Limited of Winnipeg, M u n i c i p a l Tank Lines L i m i t e d of Toronto, and Westland C a r r i e r s L i m i t e d of Vancouver. The a c q u i s i t i o n by United Westburne I n d u s t r i e s L i m i t e d w i l l r e s u l t i n a much l a r g e r c o r p o r a t i o n w i t h i n t e r e s t s i n highway t r a n s p o r t a t i o n , o i l d r i l l i n g resource i n d u s t r y and the b u i l d i n g and con- s t r u c t i o n supply i n d u s t r y . Trends i n the A c q u i s i t i o n A c t i v i t y A c q u i s i t i o n a c t i v i t y i n the Western Canadian t r u c k i n g i n d u s t r y s t a r t e d a f t e r World War I I and has been i n c r e a s i n g to the present day. This a c q u i s i t i o n a c t i v i t y a f t e r the War occurred l a r g e l y i n response to the r a p i d l y changing demands of shippers who now d e s i r e d r a p i d , door-to- door shipments to v a s t l y l a r g e r geographic areas. Most u n i f i c a t i o n s have been of the a c q u i s i t i o n type, w i t h only three notable exceptions. These exceptions were the amalgamation of firms to form Canadian Freightways L i m i t e d , _ P u b l i c ..Freightways L i m i t e d and Trimac T r a n s p o r t a t i o n L i m i t e d . The a c q u i s i t i o n s that have occurred i n the t r u c k i n g i n d u s t r y have tended to extend route a u t h o r i t y and commodity scope of o p e r a t i o n s . Most a c q u i s i t i o n s have been of a market-oriented nature g e n e r a l l y t y p i f i e d by - 51 - end-to-end a c q u i s i t i o n s which can provide shippers w i t h b e t t e r s e r v i c e to more markets. Another major trend has been the presence of intermodal owner- ships . This trend along w i t h the recent trend of conglomerate ownership has apparently acted as a l a r g e stimulus to the a c q u i s i t i o n a c t i v i t y . The a v a i l a b i l i t y of c a p i t a l to c a r r y out expansion plans has played a l a r g e r o l e i n the a c q u i s i t i o n a c t i v i t y that has taken p l a c e . Most of the a c q u i s i t i o n a c t i v i t y that has taken place has been of l a r g e r firms t a k i n g over smaller t r u c k i n g f i r m s , u s u a l l y ones that are i n f i n a n c i a l d i f f i c u l t y . In a h i g h percentage of the a c q u i s i t i o n s recorded, the most v a l u a b l e asset of the acquired company has been the route a u t h o r i t y . These route a u t h o r i t i e s are a c a r r i e r ' s a u t h o r i z a t i o n to provide s e r v i c e , and the ownership and extent of t h i s s e r v i c e i s s p e c i f i - c a l l y s p e l l e d out. Sale or t r a n s f e r of these route a u t h o r i t i e s r e q u i r e r e g u l a t o r y .approval. In p r a c t i c a l terms, the only expedient way f o r a c a r r i e r to expand i t s area of s e r v i c e i s to purchase a d d i t i o n a l e x i s t i n g r o u te a u t h o r i t i e s , s i n c e an a p p l i c a t i o n f o r a new a u t h o r i t y must prove p u b l i c convenience and n e c e s s i t y . The purchase p r i c e of many a c q u i s i t i o n s have q u i t e o f t e n r e f l e c t e d the value of the route a u t h o r i t y to an a c q u i r i n g company i n terms of a premium p a i d . A p a r t i c u l a r route a u t h o r i t y p a t t e r n may be more v a l u a b l e to one c a r r i e r than another, depending on how w e l l i t f i t s i n t o the e x i s t i n g a u t h o r i t y p a t t e r n of the a c q u i r i n g company. At any extent, the p r i c e paid f o r these a u t h o r i t i e s would be some f u n c t i o n of what the a c q u i r i n g f i r m could earn on these a d d i t i o n a l r o u t e s . CHAPTER IV THE IMPORTANCE OF FACTORS INFLUENCING MERGER ACTIVITY IN THE WESTERN CANADIAN TRUCKING INDUSTRY In Chapter I I , many f a c t o r s l i k e l y to be r e l e v a n t to merger a c t i v i t y i n the t r u c k i n g i n d u s t r y were discussed i n general terms. The primary o b j e c t i v e of t h i s chapter i s to discus s s p e c i f i c a l l y the importantance of these i s o l a t e d f a c t o r s . The f i r s t f a c t o r s to be discussed w i l l be the environmental f a c t o r s . Environmental Factors A c q u i s i t i o n a c t i v i t y has been s t i m u l a t e d by the environmental f a c t o r s discussed i n Chapter I I . The business c y c l e , l e g a l and economic disturbance f a c t o r s have a l l been very conducive to the a c q u i s i t i o n a c t i v i t y that has taken place s i n c e 1945. The f i r s t f a c t o r to be d i s - cussed w i l l be the business c y c l e . Business Cycle Factor A c q u i s i t i o n a c t i v i t y appears to have c o i n c i d e d w i t h periods of general economic p r o s p e r i t y as might be expected from the general d i s - c u s s i o n i n Chapter I I . Evidence of t h i s i s presented i n Table V I I , which presents the number of a c q u i s i t i o n s f o r each year s i n c e 1950. Only those a c q u i s i t i o n s which occurred w i t h i n the Western Canadian Trucking Industry - 53 - TABLE V I I ACQUISITIONS WITHIN THE WESTERN CANADIAN TRUCKING INDUSTRY BY YEAR AND FREQUENCY, 1950-1969 Year Frequency Year Frequency 1950 1 1960 2 1951 2* 1961 - 1952 - 1962 4 1953 1 1963 3 1954 1 1964 - 1955 2 1965 4 1956 2 1966 5 1957 3 1967 2 1958 - 1968 3 1959 - 1969 1 (as. TOTAL 36 *Note: One t a l l y here represents the amalgamation of P u b l i c Freightways Limited from 9 small t r u c k i n g f i r m s . Source: Interviews conducted by the author during March, 1969. - 54 - as defined i n t h i s t h e s i s are included i n Table V I I . These a c q u i s i t i o n s were obtained from the ten firms i n t e r v i e w e d , plus other a c q u i s i t i o n s randomly l o c a t e d by the author during the course of the f i e l d s t u d i e s . Table V II i s not a l l i n c l u s i v e , but does i l l u s t r a t e the ti m i n g of a c q u i s i t i o n a c t i v i t y i n the t r u c k i n g i n d u s t r y . Between 1950 and 1969 there have been minor recessions which e x i s t e d from J u l y , 1953, to August, 195 4; from J u l y , 1957 to A p r i l , 1958; and from May, 1960 to February, 1961.^" Table V II evidences that there i s a notable l e s s e n i n g of a c q u i s i t i o n a c t i v i t y corresponding to the times of economic c o n t r a c t i o n s and an increase of a c q u i s i t i o n a c t i v i t y f o r periods of economic expansion. Table V I I a l s o i n d i c a t e s that a c q u i s i - t i o n a c t i v i t y has been i n c r e a s i n g i n i n t e n s i t y from 1950 to the l a t e 1960's. This type of p a t t e r n can i n part be explained by the nature of demand i n the t r u c k i n g i n d u s t r y . This demand i s derived from the demand f o r consumer goods and raw m a t e r i a l s . This would i n d i c a t e that expectations i n the t r u c k i n g i n d u s t r y would be c l o s e l y r e l a t e d to the expectations of the economy g e n e r a l l y . Expectations would, t h e r e f o r e , be high during periods of economic expansion. During such periods of high business e x p e c t a t i o n s , p r o s p e c t i v e a c q u i s i t i o n s i n the t r u c k i n g i n d u s t r y would be valued higher than i n periods of economic c o n t r a c t i o n s . A good example _is that of the conglomerate c o r p o r a t i o n . This type of conglomerate a c q u i s i t i o n i s more l i k e l y to take place during periods of high business Derek White, Business Cycles i n Canada, Ottawa, Queen's P r i n t e r , 1967, p. 237. - 55 - expectations where the acquired t r u c k i n g f i r m represents a good investment aid the expectations of the stock market are g e n e r a l l y high a f f o r d i n g the conglomerate c o r p o r a t i o n a favourable stock exchange p o s i t i o n . Another aspect of t h i s a c q u i s i t i o n p a t t e r n a r i s e s from the a v a i l - a b i l i t y of a c q u i s i t i o n opportunity i n the t r u c k i n g i n d u s t r y r e s u l t i n g from the business c y c l e . The t r u c k i n g i n d u s t r y can be described as a low margin i n d u s t r y and as such i s open to a c q u i s i t i o n a c t i v i t y . Because of low p r o f i t s f o r i n t e r n a l expansion and g e n e r a l l y poor c r e d i t a v a i l a b i l i t y , a s l i g h t narrowing of the gap between revenues and expenses could produce a sha r p l y reduced p r o f i t p o s i t i o n . This c h a r a c t e r i s t i c has made the t r u c k i n g i n d u s t r y one which i s very s e n s i t i v e to changes i n volume of t r a f f i c r e s u l t i n g from changes i n business c o n d i t i o n s . The r e s u l t i s that many poorly financed and managed t r u c k i n g firms run i n t o competitive d i f f i c u l t y as the next paragraph e x p l a i n s . Most of the a c q u i s i t i o n s s t u d i e d were ones c h a r a c t e r i z e d by l a r g e r , more dominant firms a c q u i r i n g smaller firms which were i n f i n a n c i a l d i f f i - c u l t y . One executive interviewed s t a t e d that a l l the a c q u i s i t i o n s made by h i s f i r m were of firms i n f i n a n c i a l d i f f i c u l t y r e s u l t i n g mainly from t h e i r i n a b i l i t y to s u r v i v e minor r e c e s s i o n s . * Such rece s s i o n s caused se r i o u s depressions i n the smaller f i r m s ' p r o f i t streams and t y p i c a l l y s e r i o u s l y c u r t a i l e d expenditures on equipment necessary to remain com- p e t i t i v e . C o n f i d e n t i a l , personal i n t e r v i e w , 1969 - 56 - The nature of the business c y c l e i s very i n f l u e n t i a l to the amount of a c q u i s i t i o n a c t i v i t y i n the t r u c k i n g i n d u s t r y . During r e c e s s i o n s , many t r u c k i n g f i r m s have tended to become a v a i l a b l e f o r s a l e or have gone bankrupt. During the ensuing economic expansion p e r i o d , business expec- t a t i o n s increase and the l a r g e r t r u c k i n g firms f i n d those firms i n f i n a n c i a l and competitive d i f f i c u l t y very a t t r a c t i v e a c q u i s i t i o n s , e s p e c i a l l y i f they possess a t t r a c t i v e route a u t h o r i t i e s . ' Legal Factor In Chapter I I the l e g a l f a c t o r was shown to be very i n f l u e n t i a l . The t r u c k i n g i n d u s t r y has a somewhat unique l e g a l environment as compared to many other i n d u s t r i e s , but one which has been very conducive to the a c q u i s i t i o n a c t i v i t y which has taken p l a c e . The t r u c k i n g i n d u s t r y has long been regarded as a f f e c t e d w i t h p u b l i c i n t e r e s t and i n the common good. The t r u c k i n g i n d u s t r y began to a t t r a c t much r e g u l a t o r y i n t e r e s t w i t h i t s r a p i d growth i n the 1940's and e a r l y 1950's, e s p e c i a l l y i n i n t e r p r o v i n c i a l long-haul o p e r a t i o n s . The f i r s t s i g n i f i c a n t r e g u l a t i o n appeared i n the t r u c k i n g i n d u s t r y i n the 1930's, l e a d i n g to the present r e g u l a t o r y system. The present s t a t u s of r e g u l a t i o n i n the t r u c k i n g i n d u s t r y has each province i n Canada r e s p o n s i b l e f o r r e g u l a t i o n of that p o r t i o n of the t r u c k i n g i n d u s t r y that f a l l s w i t h i n i t s p r o v i n c i a l boundaries . Each prov i n c e , as a r e s u l t of the 1954 Motor V e h i c l e Transport A c t , has regu- l a t o r y powers over i n t e r p r o v i n c i a l t r u c k i n g . In 1967, the Federal Govern- ment decided to b r i n g the r e g u l a t i o n of a l l forms of t r a n s p o r t a t i o n under n a t i o n a l p o l i c y i n the form of the N a t i o n a l T r a n s p o r t a t i o n A c t . A l l - 5 7 . - p a r t s of the N a t i o n a l T r a n s p o r t a t i o n Act have s i n c e been implemented except f o r the part concerning i n t e r p r o v i n c i a l t r u c k i n g and s o l i d s p i p e l i n e s . At present, t h e r e f o r e , the r e g u l a t i o n of i n t e r p r o v i n c i a l t r u c k i n g i s s t i l l under separate p r o v i n c i a l government r e g u l a t o r y bodies. The p r o v i n c i a l r e g u l a t o r y bodies have accepted r e g u l a t i o n of the t r u c k i n g i n d u s t r y to v a r y i n g degrees w i t h A l b e r t a choosing not to r e g u l a t e at a l l . B r i t i s h Columbia, on the other hand, i s one of the b e t t e r regu- l a t e d provinces.''' In B r i t i s h Columbia, through the P u b l i c U t i l i t i e s Commission, a l l that i s necessary f o r a c q u i s i t i o n s to be approved i s f o r the a c q u i r i n g c a r r i e r to submit an a p p l i c a t i o n f o r t r a n s f e r . This i s g e n e r a l l y approved i f no b a s i c changes i n the q u a l i t y of s e r v i c e o f f e r e d i s to r e s u l t from the a c q u i s i t i o n . For i n t e r p r o v i n c i a l t r a n s f e r s , the a c q u i r i n g f i r m must get approval from each p r o v i n c i a l r e g u l a t o r y body who 2 i s a f f e c t e d by an a c q u i s i t i o n . The 1967 N a t i o n a l T r a n s p o r t a t i o n Act r e q u i r e s Canadian Transporta- t i o n Commission approval of a l l t r a n s p o r t a t i o n mergers. This along w i t h the above described p r o v i n c i a l r e g u l a t i o n s represents the l e g a l r e s t r i c - t i o n imposed on the t r u c k i n g i n d u s t r y as to c o n t r o l l i n g a c q u i s i t i o n a c t i v i t y . There has never been a case to c l a r i f y whether a c q u i s i t i o n a c t i v i t y i n the t r u c k i n g i n d u s t r y must comply to the Federal Government A n t i t r u s t D i v i s i o n or not. John Munroe, The H i s t o r y of Motor C a r r i e r T r a n s p o r t a t i o n i n Canada, Unpublished M.B.A. The s i s , Indiana U n i v e r s i t y , 1965. 2 Personal Interview, A. F i t c h , A d m i n i s t r a t i v e A s s i s t a n t and Chief I n s p e c t o r , P u b l i c U t i l i t i e s Commission, B r i t i s h Columbia, 1969. - 58 - The o b j e c t i v e of r e g u l a t i o n - i n the t r u c k i n g i n d u s t r y i s to encourage s t a b i l i t y of r a t e s , prevention of d i s c r i m i n a t i o n , f i n a n c i a l r e s p o n s i b i l i t y and s t a b i l i t y and d e p e n d a b i l i t y of s e r v i c e . In Canada and the United S t a t e s , these o b j e c t i v e s are being sought through r e s t r i c t i o n of entry and the r e s u l t i n g increase i n the average s i z e of f i r m i n the i n d u s t r y . A t r u c k i n g f i r m can only expand i t s operations through r o u t e extensions or a c q u i r i n g other t r u c k i n g firms w i t h a t t r a c t i v e route a u t h o r i t i e s . In the United S t a t e s , the I n t e r s t a t e Commerce Commission r e l u c t a n t l y grants route e x t e n s i o n s , s i n c e they have adopted the philosophy that adequate s e r v i c e e x i s t s p r e s e n t l y and the presence of an a d d i t i o n a l c a r r i e r would produce r e s u l t s harmful to e x i s t i n g c a r r i e r s as w e l l as to new c a r r i e r s . This p r a c t i c e has created a c l i m a t e f o r an i n c r e a s i n g amount of a c q u i s i t i o n a c t i v i t y , s i n c e i t i s the most expedient means by which a f i r m can expand. In Canada the s i t u a t i o n appears, at l e a s t i n p r a c t i c e , to c l o s e l y resemble that i n the United S t a t e s . A f i r m can expand e i t h e r through a p p l i c a t i o n f o r route extension i n the r e g u l a t e d provinces or can purchase a route a u t h o r i t y through a c q u i s i t i o n . In B r i t i s h Columbia, the regu- l a t o r y board appears to f i n d i t desirous to r e f u s e requests f o r route e x t e n s i o n . A s p e c i f i c example of t h i s p r a c t i c e occurred i n 1962, when a l l seven requests f o r route extensions were refused.''" An e x i s t i n g t r u c k i n g f i r m can o b t a i n more c a p a c i t y by purchasing another f i r m i nstead of going through the tough process of a p p l y i n g f o r a route a u t h o r i t y , B r i t i s h Columbia P u b l i c U t i l i t i e s Commission Annual Report, V i c t o r i a , Queen's P r i n t e r , 1962. - 59 - proving p u b l i c convenience and n e c e s s i t y , and then competing w i t h e x i s t i n g f i r m s f o r t r a f f i c . The l e g a l environment of the t r u c k i n g i n d u s t r y d i f f e r s from that i n most other i n d u s t r i e s i n that i t i s r e g u l a t e d at present by separate p r o v i n c i a l government bodies. These r e g u l a t o r y bodies, w i t h the A l b e r t a Highway T r a f f i c Board being the most obvious e x c e p t i o n , tend to favour a c q u i s i t i o n a c t i v i t y i n an attempt to achieve the o b j e c t i v e s of r e g u l a t i o n as presented above. This l e g a l environmental f a c t o r i s , t h e r e f o r e , very important i n c r e a t i n g the a c q u i s i t i o n a c t i v i t y documented i n Chapter I I I . Unless a d i f f e r e n t p o l i c y i s adopted by the Federal Government, when they implement the s e c t i o n of the N a t i o n a l T r a n s p o r t a t i o n Act d e a l i n g w i t h the t r u c k i n g i n d u s t r y , t h i s l e g a l f a c t o r should perpetuate the a c q u i s i t i o n a c t i v i t y w e l l i n t o the f u t u r e . Economic Disturbance Factor The occurrence of economic distrubances has had a very important i n f l u e n c e of the timing of a c q u i s i t i o n a c t i v i t y . For example, at the end of World War I I there e x i s t e d c o n d i t i o n s which were very conducive to a c q u i s i t i o n a c t i v i t y . S h o r t l y a f t e r the end of World War I I there was a high demand f o r the movement of h i g h l y valued merchandise through the use of t r u c k s . The post-war period was c h a r a c t e r i z e d by a r a p i d l y i n c r e a s i n g demand f o r many consumer goods and raw m a t e r i a l s which, through e x i s t i n g r a i l s e r v i c e , took a long time to reach markets. The r a p i d expansion of many t r u c k i n g firms was d e s i r a b l e to meet the demand f o r f a s t , door-to-door s e r v i c e . The r a p i d expansion i n t o e x t e n s i v e markets was expedited through a c q u i s i t i o n a c t i v i t y . - 60 - A c t i n g as c o n s t r a i n t s on t h i s r a p i d expansion were poor road c o n d i t i o n s and poor equipment which p r e v a i l e d during World War I I . Immediately a f t e r the War, highway t r a c t o r s d i d not have the power or the endurance f o r long-haul o p e r a t i o n s . Highways before 1950 were s t r u c t u r a l l y weak and l i g h t payloads made long-haul t r u c k i n g operations before t h i s time appear u n p r o f i t a b l e . World War I I s u p p l i e d r e l i e f to the equipment problem i n that the d i e s e l engine was developed and l a t e r introduced to the Western Canadian Trucking Industry. The d i e s e l engine gave the i n d u s t r y a dependable machine capable of long-hauls. New and l i g h t e r metals, developed during the War, permitted l a r g e r and l i g h t e r t r a i l e r s and l a r g e r payloads. By 1950, there e x i s t e d high expectations of e a r l y completion of the Trans-Canada highway. This had a f u r t h e r stimulus to the a c q u i s i t i o n a c t i v i t y e s p e c i a l l y i n long-haul t r u c k i n g . As roads became b e t t e r , the markets of shippers and t r u c k e r s both spread. To achieve t h i s geographic spreading, many t r u c k i n g firms acquired firms w i t h s u i t a b l e route a u t h o r i - t i e s . The long-haul segment of the i n d u s t r y responded to yet another d i s t u r b a n c e . A f o r t u i t o u s r a i l s t r i k e i n August, 1950, created a p r e s s i n g demand f o r long-haul t r u c k i n g s e r v i c e s . This nine-day s t r i k e was a notable t e s t f o r the i n d u s t r y . I t opened the door f o r an expansion of long-haul t r u c k i n g that otherwise probably would have taken years to accomplish. In response to the c o n d i t i o n s that e x i s t e d a f t e r World War I I , entrepreneurs q u i c k l y adapted t h e i r p r i n c i p a l l y l o c a l operations to that of long-haul. For most of the e a r l y entrepreneurs that pioneered the long-haul t r u c k i n g i n d u s t r y and sur v i v e d the e a r l y d i f f i c u l t i e s , there - 61 - were l a r g e rewards i n the form of r a p i d l y growing volume of t r a f f i c and l a r g e p r o f i t s . Shippers became aware of the s p e c i a l i z e d s e r v i c e o f f e r e d by t r u c k e r s . Shippers a l s o valued the t r u c k e r s 1 s e r v i c e as a hedge against f u t u r e r a i l s t r i k e s that threatened to cut them o f f from t h e i r markets. To be able to meet the changing demands of shippers a f t e r the War, t r u c k i n g firms began to value t h e i r route a u t h o r i t y very h i g h l y . To remain c o m p e t i t i v e , the route a u t h o r i t y became a very important item to the t r u c k e r . Many firms expanded t h e i r s e r v i c e g e o g r a p h i c a l l y through a c q u i s i t i o n i n order to take advantage of e x p l o i t a b l e s i t u a t i o n s that e x i s t e d i n the t r u c k i n g i n d u s t r y , e s p e c i a l l y a f t e r World War I I . I n d u s t r i a l Factors The proceeding d i s c u s s i o n p o i n t s out that the a c q u i s i t i o n a c t i v i t y has tended to occur during periods of economic expansion. The l e g a l environment was viewed as a very strong f a c t o r i n causing a c q u i s i t i o n a c t i v i t y w i t h i n the i n d u s t r y . Many of the c o n d i t i o n s conducive to a c q u i s i t i o n a c t i v i t y i n the t r u c k i n g i n d u s t r y were made a v a i l a b l e by World War I I , the r a i l s t r i k e of 1950 and the b u i l d i n g of the Trans-Canada High- way . There are many other f a c t o r s which were a l s o i n f l u e n t i a l to the a c q u i s i t i o n a c t i v i t y . These i n d u s t r i a l f a c t o r s tend to be more s p e c i f i c c h a r a c t e r i s t i c s of the t r u c k i n g i n d u s t r y . The f i r s t to be discussed w i l l be Economies of S c a l e . - 62 - Economies of Scale Factor • There was much i n t e r e s t i n the e a r l y 1960's about mergers of r a i l r o a d s , t r u c k i n g companies and of a i r l i n e s . Almost always, the proposed mergers were supposed to achieve, among other t h i n g s , substan- t i a l economies of s c a l e . I f these economies increase w i t h the s i z e of t r a n s p o r t companies, they o f f e r a strong j u s t i f i c a t i o n f o r merger.''" In Chapter I I , i t was i n d i c a t e d that economies of s c a l e of p l a n t s i z e and economies of s c a l e of management, accounting, a d v e r t i s i n g and f i n a n c i n g were strong reasons why merger a c t i v i t y took place w i t h i n an i n d u s t r y . I f there are economies of s c a l e i n the t r u c k i n g i n d u s t r y , one would expect to see the a c q u i s i t i o n a c t i v i t y that has taken place s i n c e 1950. One would expect a trend toward l a r g e r more e f f i c i e n t t r u c k i n g companies which would d r i v e out smaller o p e r a t o r s . V i r t u a l l y a l l s t u d i e s suggest th a t economies of s c a l e do not e x i s t i n the t r u c k i n g i n d u s t r y . For example, one study concluded that f o r c a r r i e r s domiciled i n and out of New England and ope r a t i n g i n New England, that s i z e of f i r m bears l i t t l e r e l a t i o n s h i p to ope r a t i n g c o s t s . Consequently, i t can h a r d l y be main- t a i n e d that there are economies of large s c a l e a v a i l a b l e i n the i n d u s t r y , 2 or a tendency toward monopoly r e s u l t i n g from that cause. In an E n g l i s h study, i t was found that there were no economies of Kent T. Healey, "The Merger Movement i n T r a n s p o r t a t i o n , " American -Economic -Review, May, 1962, p. 437. 2 Robert A. Nelson, "The Economies of Scale i n the Motor C a r r i e r Industry: A Reply," Land Economics, May 1959, p. 185. - 63 - scale in the t r u c k i n g i n d u s t r y . * T h i s study showed that for a c e r t a i n time, 1955-56, l a r g e firms i n o f f - f a r m m i l k c o l l e c t i o n i n England had no advantage over s m a l l ; i f anything t h e i r costs were h i g h e r . Another study a l s o demonstrated the absence of economies of s c a l e 2 in the t r u c k i n g i n d u s t r y . This study, however, demonstrated that there were economies of d e n s i t y to be gained i n the t r u c k i n g i n d u s t r y . Economies of d e n s i t y are defined as economies which accrue from c a r r y i n g more t r a f f i c over a given complex of p l a n t , equipment and ro u t e . These economies were a t t r i b u t e d to two ope r a t i n g c h a r a c t e r i s t i c s of the t r u c k i n g f i r m - - t h e i n t e n s i t y of route u t i l i z a t i o n and average h a u l . A c q u i s i t i o n s which simply e n t a i l the a d d i t i o n of t r a f f i c increments w i t h the same general h a u l p a t t e r n are not apt to bear much economic reward. A c q u i s i t i o n a c t i v i t y can only c o n t r i b u t e to lower costs i f they a l t e r o p e r a t i n g patterns i n s p e c i f i c ways. For example, end-to-end a c q u i s i t i o n s may r e s u l t i n increased average h a u l and p a r a l l e l combinations may improve route u t i l i z a t i o n . Much more work needs to be done i n t h i s area of study, e s p e c i a l l y f o r approval of route extensions and a c q u i s i t i o n s by the r e g u l a t o r y boards. If one assumes that the cost f u n c t i o n f o r t r u c k i n g f i r m s i s constant per u n i t of output as pl a n t s i z e i n c r e a s e s , there i s l i t t l e reason to view economies of s c a l e as conducive to a c q u i s i t i o n a c t i v i t y i n the t r u c k i n g i n d u s t r y . There may very w e l l be economies of diseconomies of management, M. Chisholm, "Economies of Scale i n Road Goods Transport, Off- Farm M i l k C o l l e c t i o n i n England and Wales," Oxford Economic Papers, October, 1959, pp. 283-290. 2 M e r i l l , J . Roberts, "Some Aspects of Motor C a r r i e r Costs: Firm S i z e , E f f i c i e n c y and F i n a n c i a l H e a l t h , " Land Economics, May, 1956, pp. 228-38. - 64 - account ing, adver t i s i ng and f inanc ing as w e l l as economies of dens i t y . L i t e r a t u r e to date does not c l a r i f y where economies of diseconomies ex i s t and tends to lump a l l costs together to show that there are no economies of sca le at work in the t ruck ing indust ry . In Chapter II, the economies of sca le f ac to r was viewed as being s t rong ly conducive to a cqu i s i t i on a c t i v i t y . Evidence shows that small f irms in the t ruck ing industry should be able to compete with l a rger f i rms , assuming no other 'd isadvantages accrue to smaller f i rms . The above d i s cus s i on tends to ind i ca te that economies of sca le in f i rm s i ze i s not a very strong reason for a cqu i s i t i on s in the t ruck ing indus t ry . Economies of dens i ty , accounting, f inanc ing and so on may be v a l i d reasons fo r such a cqu i s i t i on s to take place but to date no evidence has been presented to v a l i d a t e th i s c l a im. Techno log ica l Factor In Chapter II, the d i s cus s ion pointed out that for a f i rm to remain compet i t i ve , i t must keep up with techno log i ca l advances. These techno log i - c a l advances tend to make large corporat ions very a t t r a c t i v e to supply the increased c a p i t a l base and the increased managerial base necessary to take advantage of techno log i ca l change. In the t ruck ing indust ry , techno log i ca l change has had an in f luence in causing the a c q u i s i t i o n a c t i v i t y that has taken p l ace . There has been a f a i r l y rap id techno log i ca l advance taking p lace i n the t ruck ing indust ry , e s p e c i a l l y s ince 1945. Much of th i s techno log i ca l advance has been i n equipment, for example the s h i f t from gaso l ine to d i e s e l engines. The d i e s e l o f f e r s improved f u e l economy, lower maintenance - 65 - c o s t s and gr e a t e r d e p e n d a b i l i t y . Along w i t h b e t t e r engines came b e t t e r d r i v e - t r a i n components, l i g h t e r and stronger t r a c t o r s and t r a i l e r s , and other such changes. The l a r g e r b e t t e r financed firms were the ones that were able to o b t a i n these new developments and gain the com p e t i t i v e advantage over those f i r m s , u s u a l l y s m a l l e r ones, that could not o b t a i n such equipment. Future developments w i l l l i k e l y take place i n improved t e r m i n a l f a c i l i t i e s . Because of the h i g h labour content i n the t r u c k i n g i n d u s t r y , f u t u r e t e c h n o l o g i c a l developments w i l l emphasize greater p r o d u c t i v i t y per worker. Automated terminals are on the h o r i z o n . Truckers w i l l a l s o be f o r c e d , e i t h e r by competition w i t h i n the i n d u s t r y or from other modes of t r a n s p o r t , to improve s e r v i c e as r a p i d l y as p o s s i b l e . Competitive pres- sure w i l l perpetuate long-term p r o d u c t i v i t y trends e s p e c i a l l y of the labour s a v i n g type. The use of e l e c t r o n i c data equipment i s p r e s e n t l y e n t e r i n g the i n d u s t r y . Most of the e f f o r t s to date have been d i r e c t e d at reducing c l e r i c a l c o s t s . The computer, however, appears to a f f o r d a competitive advantage to those who can u t i l i z e i t s s e r v i c e s . For example, the computer may w e l l a f f o r d answers to complex problems which can a l l o w b e t t e r u t i l i - z a t i o n of equipment. The use of h i g h l y mechanized t e r m i n a l s , e l e c t r o n i c data processing equipment, b e t t e r and more s p e c i a l i z e d trucks and t r a i l e r s , and so on, w i l l tend to make the t r u c k i n g i n d u s t r y more c a p i t a l i n t e n s i v e . This w i l l demand firms to grow i n s i z e so that they can u t i l i z e the same t o o l s as t h e i r competitors. Larger firms w i l l tend to form as they are more - 66 - a t t r a c t i v e to keep up w i t h t e c h n o l o g i c a l change. D i v e r s i f i c a t i o n Factor Many firms have grown and d i v e r s i f i e d over time. Geographic expansion i s a form of d i v e r s i f i c a t i o n because i t gives the f i r m a greater number of i n d u s t r i e s to draw from, making i t l e s s a f f e c t e d by a depression i n any one. Many firms are d i v e r s i f i e d i n t o many s p e c i a l i z e d forms of t r u c k i n g operations as w e l l . For example, d i v e r s i f i c a t i o n can be i n t o moving and storage, d e m o l i t i o n , a i r f r e i g h t forwarding, heavy h a u l i n g , and so on. Much of the geographic d i v e r s i f i c a t i o n has taken place i n response to changing demands of shippers who want t h e i r goods d e l i v e r e d e x p e d i e n t l y and w i t h c e r t a i n t y to any poi n t w i t h i n t h e i r area of d i s t r i b u t i o n . Small f i r m s cannot give the same s e r v i c e as l a r g e r f i r m s . I t can be argued that l a r g e r firms w i l l occur i n the t r u c k i n g i n d u s t r y , even i f no economies of s c a l e e x i s t , because of the s e r v i c e advantages inherent i n geographi- c a l l y e x t e n s i v e operations and hence a greater a b i l i t y of the l a r g e r c a r r i e r to get t r a f f i c . There appears to be a preference on the part of shippers to send t h e i r goods by the t r u c k i n g f i r m which provides a com- p l e t e s e r v i c e to the u l t i m a t e d e s t i n a t i o n of the shipment. As long as t h i s s i n g l e l i n e . s e r v i c e i s p r e f e r r e d , the l a r g e r c a r r i e r s o p erating over an e x t e n s i v e geographic area w i l l have an advantage over smaller f i r m s . Some of the reasons f o r t h i s added a t t r a c t i v e n e s s to shippers are d i r e c t s e r v i c e to more markets, reduced t r a n s i t time, reduced p o s s i b i l i t y of damage and more frequent schedules. - 67 - The d e s i r e to d i v e r s i f y g e o g r a p h i c a l l y i n hopes of o f f e r i n g b e t t e r s e r v i c e and o b t a i n i n g more t r a f f i c i s a strong f a c t o r causing the end-to- end a c q u i s i t i o n s that have t y p i f i e d the i n d u s t r y . A strong d e s i r e to s t a b i l i z e earnings has a l s o caused much d i v e r s i f i c a t i o n i n the t r u c k i n g i n d u s t r y . Many firms t r y to balance head and back ha u l t r a f f i c through a c q u i s i t i o n as w e l l as to extend s e r v i c e i n t o moving and storage and other r e l a t e d f i e l d s . The d e s i r e to d i v e r s i f y has increased s i n c e 1950 and shows no immediate signs of s u b s i d i n g . The d i v e r s i f i c a t i o n philosophy i s a very important f a c t o r as many firm s interviewed were s t r i v i n g to d i v e r s i f y i n an attempt to cushion the impact of any severe d e c l i n e i n t r a f f i c from one geographic area or type of s e r v i c e . Industry L i f e Cycle Factor As discussed i n Chapter I I , much merger a c t i v i t y can be expected i n the e a r l y stage of an i n d u s t r y ' s l i f e c y c l e . Many symptoms of the t r u c k i n g i n d u s t r y tend to i n d i c a t e that i t i s approaching the end of the e a r l y stage of development. The r a p i d growth r a t e before 1957 i n d i c a t e d i n Table I I , shows that the t r u c k i n g i n d u s t r y has been undergoing a r a p i d l y expanding demand. This r a t e of growth has shown signs of l e v e l i n g o f f i n the 1960's to a r a t e of 7-8 percent per year as shown i n Table V I I I . This l e v e l i n g o f f e f f e c t would i n d i c a t e the approaching end to the early, stage of growth. High business m o r t a l i t y i s another c h a r a c t e r i s t i c of the e a r l y stage of the i n d u s t r y c y c l e . The t r u c k i n g i n d u s t r y has had a high r a t e of m o r t a l i t y throughout i t s h i s t o r y . This was e s p e c i a l l y true during the depression of the 1930's and subsequent minor r e c e s s i o n s . In the e a r l y - 68 - TABLE V I I I PERCENTAGE GROWTH IN TON-MILES PERFORMED IN CANADA BY TRUCK ( M i l l i o n s of Ton-Miles) Percentage Increase Per Year 8.2% average 16.3% 2.9% .7% 8.8% 6.7% Year 1950 - 1960 1960 - 1961 1961 - 1962 1962 - 1963 1963 - 1964 1964 - 1965 Source: C a l c u l a t e d from Table I I . - 69 - 1950's, there were many long-haul firms that d i d not s u r v i v e the e a r l y t r o u b l e s of hoof-and-mouth d i s e a s e , new equipment procurement and r a i l w a y c o m p e t i t i o n . Although m o r t a l i t y e x i s t s i n the i n d u s t r y , there i s d e f i n i t e l y a trend toward more f i n a n c i a l l y s t a b l e f i r m s . This slowing down of the m o r t a l i t y r a t e a l s o i n d i c a t e s that the i n d u s t r y i s approaching the end of the e a r l y stage of development. The investment of venture c a p i t a l i n d i c a t e s that the i n d u s t r y i s s t i l l i n the e a r l y stage of development. Because of the low costs of e n t r y i n t o the t r u c k i n g i n d u s t r y , many entrepreneurs entered the i n d u s t r y i n the 1920's and 1930's as w e l l as i n the e a r l y 1950's to e x p l o i t the demand f o r t r u c k i n g which e x i s t e d at the time. A notable trend i n the 1950's was the increased investment of c a p i t a l from o u t s i d e the i n d u s t r y . In s e v e r a l important instances t h i s c a p i t a l was used to c o n s o l i d a t e long- h a u l s e r v i c e s w i t h complementary short-to-medium haul o p e r a t i o n s . For example, Canadian Motorways Li m i t e d i s owned by B r i t i s h T r a c t i o n Cor- p o r a t i o n of Great B r i t a i n . C a p i t a l a l s o entered the t r u c k i n g i n d u s t r y from the United S t a t e s . Canadian Freightways L i m i t e d i s owned by Con- s o l i d a t e d Freightways L i m i t e d , the l a r g e s t t r u c k i n g f i r m i n the United S t a t e s . Another United States t r u c k i n g f i r m , United Buckingham Truck- l i n e s Incorporated, owns M i l l a r and Brown L i m i t e d , a t r u c k i n g f i r m o p e r a t i n g from Vancouver through the Kootenays to Calgary, Edmonton, Regina and Winnipeg. The p a r t i c i p a t i o n of the r a i l w a y s i n t o t r u c k i n g i s a l s o notable as i s the current entrance of conglomerate co r p o r a t i o n s i n t o the i n d u s t r y i n the l a s t few years. The investment of the conglomerate c o r p o r a t i o n s , - 70 - i n p a r t i c u l a r , tends to i n d i c a t e that the i n d u s t r y i s s t i l l viewed as an investment w i t h a b e t t e r than average growth r a t e . The Western Canadian Trucking Industry i s s t a r t i n g to show signs o f having a few firms evolve i n t o p o s i t i o n s o f dominance. These firms are g a i n i n g a l a r g e r share of the market by a c q u i r i n g smaller f i r m s and are a t t r a c t i n g b e t t e r f i n a n c i n g . This tends to i n d i c a t e an i n d u s t r y made up of a few dominant t r u c k i n g companies doing the l a r g e s t share of the in d u s t r y ' s t o t a l b u s i n e s s . At the same time, there w i l l be many s m a l l f i r m s doing very l o c a l i z e d s e r v i c e . As the i n d u s t r y approaches the end of the e a r l y stage of i t s l i f e c y c l e , one would expect the a c q u i s i t i o n a c t i v i t y to slow down as the o p p o r t u n i t i e s f o r expansion by a c q u i s i t i o n become l e s s . The above d i s c u s s i o n i n d i c a t e s that the i n d u s t r y i s s t i l l i n the e a r l y stage of the i n d u s t r y ' s l i f e c y c l e and that much of the a c q u i s i t i o n a c t i v i t y i s a t t r i b u t a b l e to t h i s f a c t o r . As the i n d u s t r y approaches the end o f t h i s e a r l y stage of development, a l e s s o r number of a c q u i s i t i o n s would be expected. Management A b i l i t y I t i s g e n e r a l l y recognized that most s m a l l t r u c k i n g firms are managed by s e l f - e s t a b l i s h e d former d r i v e r s who l a c k managerial t a l e n t s a p p r o p r i a t e f o r l a r g e r f i r m s . As many of these s m a l l firms grow i n s i z e , the narrow e x p e r t i s e of the managers i s not enough to a l l o w the firms to be c o m p e t i t i v e . Lack of managerial a b i l i t y has brought many firm s to an 'awkward age. 1 H i s t o r i c a l l y , many of these firms have had to e i t h e r go bankrupt or j o i n w i t h l a r g e r c a r r i e r s . - 71 - As many of the t r u c k i n g firms have grown i n s i z e , so have t h e i r need f o r s p e c i a l i z e d managers such as r a t e men, customs br o k e r s , a u d i t o r s , agents, d i s p a t c h e r s , and so on. Larger t r u c k i n g firms are best able to o b t a i n such s p e c i a l i s t s and as such have made competition f o r the s m a l l operator tougher. Recognizing the need f o r many of the s p e c i a l i z e d a b i l i t i e s , s m a l l t r u c k i n g firms at the 'awkward age 1 tend to be acquired by l a r g e r f i r m s . In the f u t u r e , the need f o r good managerial a b i l i t i e s w i l l be even g r e a t e r . The t r u c k i n g i n d u s t r y i s p r e s e n t l y going through a t r a n s i t o r y stage i n t o a period of managerial s o p h i s t i c a t i o n . The t r u c k i n g i n d u s t r y has been slow i n a t t r a c t i n g good managerial a b i l i t y . A few t r u c k i n g firms are now b r i n g i n g i n h i g h l y s k i l l e d managers. For example, the r a i l w a y s are moving personnel from the r a i l w a y s i n t o t h e i r t r u c k i n g o p e r a t i o n s . I f the computer brings h i g h competitive advantages, then management a b i l i t i e s w i l l continue to be an important reason f o r a c q u i s i t i o n s to occur. This f a c t o r w i l l tend to cause l a r g e r f i r m s to acquire l e s s ably managed firms i n the f u t u r e . F i n a n c i a l Factor In almost a l l the i n t e r v i e w s conducted by the author, i t was found that most a c q u i s i t i o n s that have taken place were of l a r g e r firms a c q u i r i n g s m a l l e r , f i n a n c i a l l y weak f i r m s . In f a c t , a l a r g e amount of the a c q u i s i - t i o n s were of firms on the verge of bankruptcy. In one p a r t i c u l a r a c q u i s i t i o n , the f i r m acquired had j u s t under a 2 m i l l i o n d o l l a r l o s s p o s i t i o n . * This acted as an i n c e n t i v e f o r purchase and a l s o t y p i f i e d ^ C o n f i d e n t i a l , personal i n t e r v i e w , 1969. - l i - the, problems that many t r u c k i n g f i r m s have found themselves i n . Many s m a l l t r u c k i n g firms have run i n t o a squeeze where they have not made the proper p r o v i s i o n s f o r equipment replacement and expansion. These fir m s are not f a r from s e r i o u s f i n a n c i a l d i f f i c u l t y . Many such f i r m s appear f o r s a l e or go bankrupt. Most fir m s today r e a l i z e the need f o r l a r g e pools of c a p i t a l to supply the needed funds f o r expansion and equipment replacement. The s m a l l f i r m s have been l i m i t e d as to the amount of debt that they could o b t a i n . Investors t y p i c a l l y r e q u i r e a proven earnings r e c o r d , good management and other such c r i t e r i a before loans w i l l be granted. Most small t r u c k i n g f i r m s are unable to meet the requirements to o b t a i n the necessary debt to remain o p e r a t i v e . Many of the t r u c k i n g f i r m s which are expressing dominance are ones that have been s u c c e s s f u l i n t y i n g i n t o l a r g e pools of c a p i t a l . For example, Johnston Terminals L i m i t e d and G i l l I n t e r p r o v i n c i a l T r u c k l i n e s L i m i t e d have gone p u b l i c i n the l a s t 5-10 yea r s . Another example i s P u b l i c Freightways L i m i t e d being acquired by Coronation C r e d i t C o r p o r a t i o n . In any case, the need f o r a v a i l a b l e c a p i t a l to meet f u t u r e expansion and replacement of equipment i s a very s i g n i f i c a n t f a c t o r i n causing many of the a c q u i s i t i o n s that have taken p l a c e . I t i s very l i k e l y that l a r g e r firms appear a t t r a c t i v e because they .can o b t a i n the funds needed f o r expansion more e a s i l y . The t r u c k i n g i n d u s t r y has been plagued w i t h u n d e r c a p i t a l i z a t i o n over the years and w i t h funds a v a i l a b l e , aggressive management w i l l be able to seek the route - 73 - a u t h o r i t i e s needed to extend t h e i r o p e r a t i o n s . Sympathetic Factor The commodity s o l d i s b a s i c a l l y the q u a l i t y of s e r v i c e . This i n c l u d e s such f a c t o r s as speed, r e l i a b i l i t y , freedom from l o s s and damage, p i c k up and d e l i v e r y s e r v i c e , and i d e n t i c a l route p a t t e r n s . The d e s i r e f o r c e r t a i n route patterns deemed necessary f o r competitive reasons i s one of the s i g n i f i c a n t f a c t o r s causing a snowball e f f e c t to the a c q u i s i t i o n a c t i v i t y i n the t r u c k i n g i n d u s t r y . One end-to-end a c q u i s i t i o n seems to cause o t h e r s . One c a r r i e r , seeing i t s competitor expand s e r v i c e , hastens to do l i k e w i s e . The i m p l i c a t i o n s of not having a competitive route a u t h o r i t y i s that only those p o i n t s of a firm's route a u t h o r i t y can be s e r v i c e d and other p o i n t s go to competitors. I t i s apparent t h a t , s t a r t i n g i n the 1950's, that a sympathetic r e a c t i o n has occurred w i t h i n the t r u c k i n g i n d u s t r y i n order to o b t a i n c o m p e t i t i v e route a u t h o r i t i e s . This sympathetic r e a c t i o n might lead to a c q u i s i t i o n s which are done i n haste and which might end up u n p r o f i t a b l e and complete f a i l u r e s . CHAPTER V CONCLUSIONS The preceeding three chapters have attempted to document the nature of a c q u i s i t i o n a c t i v i t y w i t h i n the Western Canadian Trucking Industry and to i s o l a t e and d i s c u s s the r e l a t i v e importance o f f a c t o r s conducive to t h i s a c q u i s i t i o n a c t i v i t y . The purpose of t h i s chapter i s to summarize the more important f i n d i n g s . F i r s t , many other areas of study suggest themselves throughout t h i s t h e s i s . An important area where f u r t h e r i n v e s t i g a t i o n i s necessary concerns a study which determines the op e r a t i n g f e a t u r e s which a f f e c t the e f f i c i e n c y of t r u c k i n g f i r m s . Such a study would enable economic d e c i s i o n s to be made on a c q u i s i t i o n s and mergers by t r u c k i n g f i r m s ' management and by the r e g u l a t o r s . A study of economies of s c a l e would a l s o be desirous i n the Western Canadian Trucking I n d u s t r y . Such a study should t r y to i n v e s t i g a t e where, i f at a l l , economies of diseconomies e x i s t . For example, are there economies or diseconomies of f i r m s i z e , management, accounting, a d v e r t i s i n g and f i n a n c i n g ? Another area which r e q u i r e s i n v e s t i g a t i o n i s the area of s h i p p e r s ' p r e f e r e n c e s . Such a study should determine i f shippers a s s o c i a t e s u p e r i o r q u a l i t y of s e r v i c e w i t h l a r g e r c a r r i e r s . The i m p l i c a t i o n here i s that i f shippers p r e f e r l a r g e r c a r r i e r s to s m a l l , the i n d u s t r y may take the form of few l a r g e r c a r r i e r s w i t h b e t t e r q u a l i t y of s e r v i c e r a t h e r than an - 75 - i n d u s t r y composed o f many smaller t r u c k i n g firms and poorer q u a l i t y of s e r v i c e . A study to determine whether the r e g u l a t o r y o b j e c t i v e s of f i n a n c i a l r e s p o n s i b i l i t y and s t a b i l i t y are being achieved through the formation of l a r g e r f i r m s would a l s o be d e s i r o u s . I f no economies of s c a l e e x i s t , then s m a l l c a r r i e r s could compete as e f f i c i e n t l y as l a r g e . The i m p l i c a t i o n here i s that the formation of l a r g e r s i z e t r u c k i n g f i r m s may not be s o l v i n g the f i n a n c i a l l y weak c a r r i e r problem which has c h a r a c t e r i z e d the t r u c k i n g i n d u s t r y f o r so many yea r s . For example, t h i s could develop i f disecono- mies of s c a l e e x i s t i n the i n d u s t r y . I f t h i s were t r u e , the r e g u l a t o r s may f i n d i t desirous to review t h e i r a c q u i s i t i o n approval c r i t e r i a . Another important area of study i s that of intermodal ownership. Such a study should t r y to determine what net b e n e f i t s are l i k e l y to accrue from intermodal ownership. A good focus f o r such a study would be to analyse the two r a i l w a y s p a r t i c i p a t i n g i n the t r u c k i n g i n d u s t r y . Canadian P a c i f i c Transport L i m i t e d , between 1958 and 1962, co n s o l i d a t e d a l l t h e i r acquired t r u c k i n g firms i n t o one o p e r a t i o n a l u n i t . This i n t e - grated approach d i f f e r s from the approach of Canadian N a t i o n a l Transport L i m i t e d who operate t h e i r t r u c k i n g firms as separate u n i t s . Each u n i t competes w i t h others and operates under independent colours w i t h each r e p o r t i n g separate p r o f i t and l o s s statements. These two d i f f e r i n g approaches to intermodal ownership would provide a good base f o r such a study. Another area of study of growing i n t e r e s t i s the one of f o r e i g n ownership i n the Western Canadian Trucking Industry. For example, how - 76 - desirous i s i t to have l a r g e American owned t r u c k i n g firms i n f l u e n c i n g p o l i c y i n the Canadian t r a n s p o r t a t i o n f i e l d ? Another r e l a t e d area of importance i s a study of the d e s i r a b i l i t y of o u t s i d e ownership. For example, how able are managers of conglomerate co r p o r a t i o n s i n managing t r a n s p o r t a t i o n companies, and are t h e i r i n t e r e s t s the same as those of • companies concerned only w i t h the t r a n s p o r t a t i o n f u n c t i o n ? This study shows that there has been much a c q u i s i t i o n a c t i v i t y i n the Western Canadian Trucking Industry s i n c e 1950. This a c q u i s i t i o n a c t i v i t y has tended to extend route a u t h o r i t y and commodity scope of o p e r a t i o n s . Most of these a c q u i s i t i o n s have been of a market-oriented type g e n e r a l l y t y p i f i e d by end-to-end a c q u i s i t i o n s , that are aimed at improving s e r v i c e . Most of the a c q u i s i t i o n a c t i v i t y that has taken place has been of l a r g e r f i r m s a c q u i r i n g s m a l l e r t r u c k i n g f i r m s , u s u a l l y ones that are i n f i n a n c i a l d i f f i c u l t y . In the m a j o r i t y of cases, the most v a l u a b l e asset of the acquired f i r m has been the route a u t h o r i t y . In p r a c t i c a l terms, the only expedient way f o r a c a r r i e r to expand i s to purchase a d d i t i o n a l e x i s t i n g route a u t h o r i t i e s , s i n c e an a p p l i c a n t f o r a new route a u t h o r i t y must prove p u b l i c convenience and n e c e s s i t y . I t was found i n Chapter I I , that many f a c t o r s can be i s o l a t e d that are l i k e l y to be conducive to a c q u i s i t i o n a c t i v i t y i n any i n d u s t r y . In Chapter IV i t was found that these f a c t o r s v a r i e d i n importance when c o n s i d e r i n g the Western Canadian Trucking Industry. More s p e c i f i c a l l y , the environmental f a c t o r s were found to be - 7 7 - conducive to merger a c t i v i t y . I t was found t h a t a c q u i s i t i o n a c t i v i t y occurred during economic expansion p e r i o d s . During r e c e s s i o n s , many t r u c k i n g f i r m s tend to get i n t o f i n a n c i a l d i f f i c u l t y and become a v a i l a b l e f o r s a l e or go bankrupt. Many of these firms become a t t r a c t i v e a c q u i s i t i o n s during periods of i n c r e a s i n g business e x p e c t a t i o n s , e s p e c i a l l y i f they possess a t t r a c t i v e route a u t h o r i t i e s . A l i t t l e s p e c u l a t i o n would see the recent p e r i o d of h i g h a c q u i s i t i o n a c t i v i t y c o n t i n u i n g u n t i l there i s a sharp r e v e r s a l of the economy. The l e g a l f a c t o r was found to be one of the strongest forces conducive to a c q u i s i t i o n a c t i v i t y . Because of the r e g u l a t o r y p r a c t i c e s of r e s t r i c t i o n of entry and r e l a t i v e l y easy approval of route a u t h o r i t y t r a n s f e r s , a c l i m a t e conducive to a c q u i s i t i o n a c t i v i t y has been created by the r e g u l a t o r s . I t can be-concluded t h a t , b a r r i n g some new government r e g u l a t i o n , the recent h i g h a c q u i s i t i o n a c t i v i t y w i l l continue. Economic disturbances have had a very powerful e f f e c t i n causing the a c q u i s i t i o n a c t i v i t y that has taken place s i n c e 1950. The e x p l o i t a b l e c o n d i t i o n s that p r e v a i l e d a f t e r World War I I had a very prominent r o l e i n the r a p i d adjustments necessary that r e s u l t e d i n a f a i r l y r a p i d a c q u i s i t i o n movement. The r a i l w a y s t r i k e of 1950 and the b u i l d i n g of the Trans-Canada Highway acted as a f u r t h e r stimulus to t h i s a c q u i s i t i o n a c t i v i t y . Many of the i n d u s t r y f a c t o r s i s o l a t e d i n Chapter I I a l s o were conducive to the a c q u i s i t i o n a c t i v i t y that took p l a c e . Economies of s c a l e were viewed as being strong reasons f o r merger a c t i v i t y i n i n d u s t r y g e n e r a l l y . Evidence showed that t h i s f a c t o r has very l i t t l e e f f e c t i n causing the a c q u i s i t i o n a c t i v i t y that has taken place i n the t r u c k i n g - 78 - i n d u s t r y . At the same time, there may e x i s t economies of d e n s i t y , management, accounting, a d v e r t i s i n g and fin a n c e that tend to be conducive to a c q u i s i t i o n a c t i v i t y . The t e c h n o l o g i c a l f a c t o r has played a s i g n i f i c a n t r o l e i n the a c q u i s i t i o n a c t i v i t y that has taken p l a c e . Larger firms are desirous to a t t r a c t the f i n a n c i a l and managerial base necessary to take advantage of the many t e c h n o l o g i c a l changes that have taken p l a c e . Future technolo- g i c a l changes w i l l tend to make the Western Canadian Trucking Industry more c a p i t a l i n t e n s i v e . Most of t h i s t e c h n o l o g i c a l change i n the f u t u r e appears to be d i r e c t e d at i n c r e a s i n g p r o d u c t i v i t y per worker. A l i t t l e s p e c u l a t i o n would see t h i s t e c h n o l o g i c a l f a c t o r becoming more s t r o n g l y conducive to a c q u i s i t i o n a c t i v i t y as automated terminals and e l e c t r o n i c data equipment become more wid e l y used. The d e s i r e to d i v e r s i f y g e o g r a p h i c a l l y i n hopes of o f f e r i n g b e t t e r s e r v i c e and o b t a i n i n g more t r a f f i c i s a strong f a c t o r causing end-to-end a c q u i s i t i o n s . The desire, to s t a b i l i z e e arnings, balance head and back h a u l , and to extend s e r v i c e i n t o r e l a t e d moving and storage, a i r f r e i g h t , and so on, make the d i v e r s i f i c a t i o n f a c t o r a strong one i n causing t h i s a c q u i s i t i o n a c t i v i t y . This f a c t o r shows no signs of s u b s i d i n g and should tend to perpetuate mergers i n the Western Canadian Trucking Industry. Another f a c t o r which i s a s s o c i a t e d w i t h the a c q u i s i t i o n a c t i v i t y t h a t has occu r r e d , i s the i n d u s t r y l i f e c y c l e f a c t o r . Evidence tends to show that the Western Canadian Trucking Industry i s p r e s e n t l y i n the e a r l y stage of development. Few symptoms show that the i n d u s t r y i s nearing the ma t u r i t y stage. I f the i n d u s t r y f o l l o w s the expected p a t t e r n the - 79 - a c q u i s i t i o n a c t i v i t y could be expected to slow down as the i n d u s t r y enters the m a t u r i t y stage. A l i t t l e s p e c u l a t i o n would see r e l a t i v e l y few dominant fi r m s emerging. The t r u c k i n g i n d u s t r y i s p r e s e n t l y going through a t r a n s i t o r y stage i n t o a p e r i o d of management s o p h i s t i c a t i o n . H i s t o r i c a l l y , p o o r l y managed fi r m s have had to s e l l out or go bankrupt. In the f u t u r e , as a r e s u l t of the growing need f o r a t t r a c t i n g good managerial a b i l i t y , t h i s management f a c t o r w i l l cause the sm a l l e r f i r m s to be at a disadvantage and w i l l tend to perpetuate the a c q u i s i t i o n a c t i v i t y i n the Western Canadian Trucking Indu s t r y . The f i n a n c i a l f a c t o r has a l s o had a strong a s s o c i a t i o n i n causing the a c q u i s i t i o n a c t i v i t y that has taken p l a c e . The se r i o u s f i n a n c i a l d i f f i c u l t i e s experienced by many smaller t r u c k i n g firms and the recog- n i t i o n f o r the need of l a r g e pools of c a p i t a l to supply expansion and equipment needs have been very conducive to the a c q u i s i t i o n a c t i v i t y that has taken p l a c e . Outside c a p i t a l has been very i n f l u e n t i a l i n causing t h i s a c q u i s i t i o n a c t i v i t y . The r a i l w a y s i n p a r t i c u l a r , due to an absence of r e g u l a t i o n r e s t r i c t i n g intermodal ownership i n Canada, have entered the t r u c k i n g i n d u s t r y f r e e l y . This f i n a n c i a l f a c t o r should continue to be an important f a c t o r i n perpetuating a c q u i s i t i o n a c t i v i t y i n the Western Canadian Trucking Industry. The sympathetic f a c t o r has a l s o been i n f l u e n t i a l . I t appears as i f many a c q u i s i t i o n s have been made i n response to those by competing t r u c k i n g f i r m s . This sympathetic r e a c t i o n has expressed i t s e l f mainly i n the form of end-to-end a c q u i s i t i o n s that g i v e a f i r m a s i m i l a r route a u t h o r i t y to - 80 - other f i r m s . The d e s i r e f o r c e r t a i n route patterns deemed necessary f o r comp e t i t i v e reasons i s one of the s i g n i f i c a n t f a c t o r s causing a snowball e f f e c t i n the r a t e o f a c q u i s i t i o n a c t i v i t y . In c o n c l u s i o n , t h i s study f i n d s that much a c q u i s i t i o n a c t i v i t y has taken place i n the Western Canadian Trucking Industry s i n c e 1950 as documented i n Table VI. Most o f t h i s a c q u i s i t i o n a c t i v i t y has been to extend route a u t h o r i t i e s . This ' a c q u i s i t i o n a c t i v i t y has been i n response to the f o l l o w i n g environmental f a c t o r s : business c y c l e f a c t o r , l e g a l f a c t o r , and economic disturbance f a c t o r . A l s o i n f l u e n t i a l i n causing t h i s a c t i v i t y has been the f o l l o w i n g i n d u s t r i a l f a c t o r s : d i v e r s i f i c a t i o n f a c t o r , t e c h n o l o g i c a l f a c t o r , i n d u s t r y l i f e c y c l e f a c t o r , management f a c t o r , f i n a n c i a l f a c t o r and sympathetic f a c t o r . Economies of s c a l e f a c t o r was found to be r e l a t i v e l y unimportant except f o r p o s s i b l e manage- ment, accounting, a d v e r t i s i n g and f i n a n c i a l economies. There may a l s o be some economies of d e n s i t y . 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