Technology was the key to First Union Corp.'s recent purchase of a transportation management company.
First Union Rail Corp., a subsidiary of the Charlotte, N.C.-based bank, said Monday that it had agreed to purchase Northbrook Rail Corp. of Arlington Heights, Ill.
The price was not disclosed. In addition to owning 3,100 freight cars, Northbrook has some of the most advanced technology in the railcar leasing business, according to First Union Rail president Jack Thomas.
"This is not a large market for computer people, so most of the systems in this business are developed internally by the other leasing companies," Mr. Thomas said. "We had the choice of either developing our own over a period of several months and years or acquiring a company that was already in the business.
"Northbrook had just redeveloped their system, so it was state of the art. It was a way to expand without picking up the direct costs. We were able to pick up a company that had been able to cover their costs with their fleet, and then we'll add our fleet to it, so it adds to the economies of scale."
The addition of Northbrook's freight cars will boost First Union Rail's total to more than 13,000, making it the fourth-largest general purpose railroad car leasing company in the country, according to Mr. Thomas. General Electric Capital Corp. is the nation's largest rail leasing company.
"It gives us our next leg up in order to become a more effective player in this marketplace," Mr. Thomas said. "The larger company will benefit from economies of scale, a geographically diverse, experienced sales force, and strong internal systems for supporting the operating lease fleet."
While First Union Rail would like to continue its expansion program, Mr. Thomas indicated that future growth is not likely to be rapid or dramatic.
"The market is relatively stable right now, so being able to expand in big numbers is not likely to happen," Mr. Thomas said. "Since they're long- lived assets, you don't buy railcars on speculation. There has to be real demand for the cars before you acquire them. We will expand as the market develops."
Mr. Thomas said the acquisition of Northbrook Rail, while strategically important for First Union Rail, is too small a transaction to have any discernible effect on the parent company's earnings.
First Union is one of only two U.S. banks involved in the freight car leasing business; the other is Citicorp.
First Union entered the freight car leasing business two years ago, when changes in bank regulation eliminated the need for residuals insurance, thereby lowering the cost to lessors.
With offices in Chicago and Montreal, First Union Rail now leases cars to more than 80 companies, including railroads such as Norfolk Southern Corp. and CSX Transportation Inc., and shippers like Cargill and Mobil Oil Corp.
Mr. Thomas, 51, is a 30-year veteran of the freight car leasing business who joined First Union in May 1994. Formerly with Chrysler Corp.'s rail leasing subsidiary, Mr. Thomas drew up the plan that enticed First Union to enter the business.
First Union is the sixth-largest U.S. bank holding company, with assets of $132 billion.