Burst of Acquisition Interest May Alter Large Fleet Lineup
This story appears in the Sept. 30 print edition of Transport Topics.
A sudden burst of acquisition activity surfaced in a three-day span last week involving four of the nation’s largest trucking fleets, including two offers for the less-than-truckload assets of Vitran Corp. and a $95 million bid by Knight Transportation Inc. for USA Truck Inc.
Vitran on Sept. 23 announced an agreement to sell for $2 million its loss-plagued U.S. trucking operations to Matthew Moroun, whose companies operate LTL and other trucking businesses.
One day later, TransForce Inc. swooped in with an offer of $74 million, or $4.50 per share, for Vitran’s profitable Canadian LTL operation.
Later in the week, Knight announced an offer of $9 per share for truckload fleet USA Truck. It also said it purchased an 8.5% stake in the company that rejected an identical offer earlier this month from Knight.
TransForce ranks No. 8 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers. Knight is No. 31, while Vitran is No. 40 and USA Truck is No. 52 on the TT list.
If Knight’s offer is successful, the carrier would have annual revenue of about $1.5 billion, including intermodal and brokerage services.
In a letter to USA Truck’s board, CEO Kevin Knight said the offer “would provide significant and immediate cash value that is significantly more attractive than USA Truck’s stand-alone prospects.”
USA Truck responded late on Sept. 26 the proposal “substantially undervalues” the company, saying it was open to further discussions.
“We believe that executing our strategic plan will offer superior value to our shareholders,” USA Truck said.
USA Truck, based in Van Buren, Ark., has lost money in most recent quarters and had a first-half 2013 loss of $3.9 million and a 104.4 operating ratio. Meanwhile, Knight has posted industry-leading results, including 15% higher first-half 2013 net income of $34.1 million and an operating ratio of 85.3.
The move by Knight was a 39% premium to the $6.46 closing price of USA Truck shares on Sept. 25.
“We are writing this letter to share our frustration with USA Truck’s unwillingness to constructively engage with us regarding our interest in a transaction while at the same time communicating directly to the board of USA Truck the significant value we would propose to pay,” Knight said.
Two years ago, USA Truck’s board rebuffed an acquisition overture from Celadon Group.
Knight observed that while USA Truck’s losses have narrowed, “its book value continues to fall, and the share volume remains quite limited, making it difficult for your shareholders to achieve liquidity.”
Knight also announced it is prepared to “modestly” increase the purchase price and would assume $147 million in debt.
“Knight and USA Truck operate in complementary service lines, and this proposed transaction would create an operationally and financially stronger transportation company,” Knight’s statement said.
Moroun, who agreed to purchase the U.S. assets of Vitran, already controls LTL carrier Central Transport, which could absorb Vitran, a Stifel Nicolaus report said. Moroun’s other holdings include the Ambassador Bridge linking Detroit and Ontario, Universal Truckload Services Inc. (No. 26 on the TT100 for-hire list) and P.A.M. Transportation Services (No. 65 on the TT100 list).
Transport Topics didn’t receive a response to requests for comment from Moroun or Central Transport.
Vitran said Moroun would fund U.S. operations, which have more than $500 million in annual revenue, until the deal closes.
Vitran’s losses have mounted since 2010, when it nearly reported a profit. First-half losses topped $31 million after a 2012 loss of $37.9 million.
Vitran doesn’t disclose separate results for its U.S. and Canadian businesses but has said its Canadian business is profitable.
Efforts to turn around the U.S. business have included an acquisition, pulling back from West Coast markets, selling off assets to raise cash and removing former CEO Rick Gaetz.
“We have evaluated a wide range of strategic alternatives over the last five months,” William Deluce, Vitran’s interim CEO, said in a statement, noting the Moroun offer was the best outcome available.
TransForce, which has steadily built a $3.1 billion company through acquisitions in the LTL, package and other trucking sectors, offered $4.50 per share, 5% below the Sept. 25 closing price.
TransForce’s proposal is conditional on the U.S. asset sale, its letter said. Vitran subsequently issued a statement, announcing that it is considering TransForce’s proposal and that the U.S. asset sale could be completed by Oct. 7 or sooner.
The prospective buyer for the Canadian assets with about $200 million in revenue said Vitran’s Canadian LTL service “would remain a stand-alone business” with the existing management remaining in place.
“Vitran’s management must be pleased to have been able to find an investor who has assigned value to the long-money-losing U.S. LTL business,” Cowen Securities analyst Jason Seidl said. “The results seem even worse when compared to the solid numbers reported by [Vitran’s] LTL peers in 2Q13.”
Seidl noted Vitran’s 109 operating ratio in the second quarter was by far the worst among publicly traded LTLs.
He also said the Canadian operations could attract additional bidders.
In a separate development, TransForce said Sept. 26 it acquired courier service Total Delivery Systems of Victoria, British Columbia, to expand its package offerings, adding about $20 million in revenue. Terms of the deal were not disclosed.
The announcements follow two months after another TT Top 100 for-hire carrier, No. 66 Frozen Food Express Industries, was acquired by Duff Brothers Capital, which owns No. 74 KLLM Transport Services.
