Knight Steps Up Drive to Buy USA Truck, Criticizes ‘Significant Risk’ in Rescue Plan
This story appears in the Nov. 11 print edition of Transport Topics.
Truckload carrier Knight Transportation Inc. stepped up its efforts to acquire USA Truck Inc. last week, charging that USA’s turnaround plan is “fraught with significant risk” due to persistent losses, aging equipment and weak cash flow.
Knight, based in Phoenix, made those allegations in a statement that accompanied a regulatory filing focused on the company’s recent and historical financial results.
Six weeks ago, Knight offered $9 a share for USA Truck, whose board rebuffed the proposal, saying that the company’s offer was inadequate in light of recent financial improvement.
“We have no plans to issue a formal response at this time,” USA Truck Chief Financial
Officer Cliff Beckham told Transport Topics on Nov. 6.
USA Truck reported a ninth consecutive quarterly loss during the third quarter but cut the amount to $602,000 from more than $6 million a year earlier.
“Recent financial results demonstrate only limited improvement,” Knight’s Nov. 4 statement said, citing USA Truck’s 103.6 operating ratio in the third quarter after 103.8 in the second quarter.
However, on a year-to-year basis, USA’s operating ratio improved more than 10 percentage points.
USA Truck stressed additional positives in its third-quarter earnings release, including 13.5% higher revenue, higher miles per tractor and an increase in seated tractors at a time when other companies have been struggling to find drivers.
“The continued, accelerating improvement in our results clearly illustrates the rapid progress we’re making in our turnaround,” CEO John Simone said in the earnings announcement, noting four consecutive quarters of improved financial performance.
He also said the company expects “to build even further on the strong business momentum we have established.”
“USA Truck’s limited cash flow generation has constrained its fleet investment,” the potential buyer’s statement said, noting that USA Truck’s fleet is among the oldest run by publicly traded truckload carriers. Knight also noted USA Truck’s depreciation and amortization was more than triple its capital spending so far this year.
USA Truck, which last month filed a lawsuit against Knight for breach of contract in an Arkansas court, also accused the company of bad faith for disclosing previous merger talks.
Knight owns 12.4% of USA Truck shares. USA Truck adopted a shareholder rights plan months before Knight’s recent offer, which discourages acquisitions if any hostile buyer acquires more than 15% of its stock. The terms of that rights plan bar changes or challenges until May.
Last week, Knight reiterated its willingness to modestly raise its offer, without saying by how much. USA Truck shares have surged, topping $13 at times last week, more than double the price of $6.46 on the day before Knight’s Sept. 26 bid.
Knight spokesman Nick Leasure told TT that Knight’s presentation filed at the Securities and Exchange Commission was intended as investor information and not for a specific meeting audience.
Knight ranks No. 31 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada. USA Truck ranks No. 52.
