Fed Ex

FIN 501

FED EX

Fed Ex is leader in the freight and cargo industry. They are currently valued over twenty nine billion dollars. While they are composed of multiple networks that include both air and ground cargo delivery as well as e commerce and business solutions they are distinctly aware of the need to diversify and grow to stay competitive in the present and future market. To satisfy their needs in this capacity Fed Ex has created a strategy to build and diversify their financial portfolio. This strategy includes the purchase of Watkins Motor lines, a privately owned less than truckload (LTL) company in the United States, and the purchase of Tianjin Datian W. Group Co. Ltd.’s (DTW Group) share of the Fed Ex-DTW International Priority express joint venture as well as the DTW Groups domestic express network in China. While these acquisitions are important decisions to the company, they do require financing. To acquire Watkins Motor Lines Fed Ex used current assets to finance the buy. Fed Ex used non-current assets to finance the purchase of the DTW Groups share in the Fed Ex-DTW Group joint venture in China.

For the acquisition of Watkins Motor Lines, Fed Ex used current assets, namely cash and cash equivalents for $780 million. This was an excellent choice and the most appropriate because they avoid any and all interest payments that would be incurred through any debt financing. Even if Fed Ex chose a type of current debt financing, whether it be a line of credit or notes payable, some amount of interest would have to have been paid resulting in unnecessary payments. Fed Ex is unique in its ability to acquire Watkins motor Lines for $780 million because they report $1,039 million cash and cash equivalents in 2005. Even after the purchase Fed Ex still has $259 million left in cash and cash equivalents. While this is not common in all companies, Fed Ex’s portfolio management and strategic decision making has made this possible.

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