Harvard Business School

9-291-080

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June 25, 1991

Continental Carriers, Inc.

op yo In May 1988, Elizabeth Thorp, treasurer of Continental Carriers, Inc. (CCI) was considering the advantages and disadvantages of several alternative methods of financing CCI’s acquisition of
Midland Freight, Inc. At a recent meeting of the board of directors, there had been substantial disagreement as to the best method of financing the acquisition. After the meeting Ms. Thorp was asked by John Evans, president of CCI, to assess the arguments presented by the various directors and to outline a position to be taken by the management at the June directors’ meeting.
CCI was a regulated general commodities motor carrier whose routes ran the length of the
Pacific Coast, from Oregon and California to the industrial Midwest, and from Chicago to several points in Texas. Founded in 1952 by three brothers, the firm experienced little growth until the mid1970s. At that point Mr. Evans joined the firm as president after many years as an executive of a major eastern carrier. Mr. Evans first concentrated his efforts on expanding CCI’s revenues on existing routes through an intensive marketing effort and a renewed emphasis on improving service.
In 1982, utilizing the proceeds of CCI’s initial public offering of common stock, Mr. Evans began a program designed to reduce operating costs through a combination of extensive computerization of operations and improvement in terminal facilities. As a result of these changes, CCI became a large and profitable concern, widely respected in the industry for its aggressive management.

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By 1988, Mr. Evans and the directors of the company had come to the conclusion that the key to continued expansion in revenues and income was a policy of selected acquisitions. After a study of potential candidates for acquisition, negotiations began with Midland