Knight-Swift Agrees to Acquire U.S. Xpress
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Knight-Swift Transportation Holdings has reached an agreement to acquire U.S. Xpress for approximately $808 million, the companies announced March 21.
U.S. Xpress will continue as an independent brand to minimize workforce and customer disruptions. Its current senior management will continue to lead the company until the deal closes.
It’s subject to customary conditions but is expected to close sometime midyear.
“The opportunity to add one of the largest and most well-known brands in our industry, with significant opportunity to improve earnings, gain customers and reach more professional drivers, was very compelling to us,” Knight-Swift CEO Dave Jackson said. “We expect to apply the same playbook that proved successful in the Knight-Swift merger as we share best practices, improve operations and work together to help U.S. Xpress become the best that it can be.”
Jackson
U.S. Xpress CEO Eric Fuller and Executive Chairman Max Fuller plan to transition out of their roles once the deal closes. Eric Peterson, chief financial officer, also plans to step down then.
The deal was unanimously approved by the board of directors at Knight-Swift and a special committee of independent directors from the U.S. Xpress board of directors.
“We are very pleased to deliver to our stockholders the opportunity for near-term liquidity at a significant premium,” Eric Fuller said. “Additionally, joining the Knight-Swift team is an exciting opportunity for our people, our customers, and the Chattanooga and other communities we call home. The increased scale, operating expertise and resources of the combined entity will allow U.S. Xpress to pursue new levels of service and efficiency.”
U.S. Xpress stockholders are expected to receive $6.15 per share for each outstanding share of Class A and Class B common stock.
The Fullers and related entities are the exception since a portion of their shares will roll over into an approximately 10% interest in a new Knight-Swift subsidiary formed to hold the U.S. Xpress business post-closing. The rollover interests will be subject to redemption provisions based on future business performance.
“The Fuller family, along with their co-founders, the Quinns, built one of the largest and fastest growing truckload carriers in the country,” Jackson said. “We’re honored to lead the next phase of U.S. Xpress’ development, and we are pleased that the Fullers are willing to link a portion of their economic outcome to ours to mitigate the transition risk.”
Knight-Swift expects its revenue base to grow by nearly 30% because of the deal.
The deal closing could mean an additional $2.2 billion in total operating revenue, 7,200 tractors and 14,400 trailers for its consolidated enterprise results. Its consolidated revenue run-rate is expected to approach $10 billion. Knight-Swift is targeting an adjusted operating ratio in the high 80s by 2026.
The company also expects it to be accretive to its adjusted earnings per share.
U.S. Xpress
Likewise, Deutsche Bank estimates the potential from this deal is more than $350 million in additional earnings before interest, taxes, depreciation and amortization (EBITDA) by 2026. Because of that the multinational investment bank sees potential for true value creation of about $1.2 billion at $7 per share. But it suspects EBITDA will be even higher given potential future revenue growth.
“We’re not surprised to see today’s announcement that KNX will acquire U.S. Xpress,” Deutsche Bank analyst Amit Mehrotra said in a report. “The company’s growth ambitions have been very clear in recent years (since the successful integration of Swift), and the company has been transparent on recent earnings calls about the potential to acquire another truckload company, which is a business they know incredibly well and execute better than most.
Knight-Swift doesn’t expect the transaction to slow down its growth initiatives including the geographic expansion of its less-than-truckload network. Deutsche Bank agreed based on its free cash flow generation and the price of the deal.
“On a headline basis, it’s understandable to balk at the premium paid for U.S. Xpress (over 300%),” Mehrotra said. “But this is the wrong sentiment, in our view. We note, USX was trading at effectively option value, anyway, with the vast majority of enterprise value accounted for by debt. This is reflected in the breakdown of EV that KNX is paying, with the majority still accounted for the assumption of debt even after the big premium for the equity.”
Stephens suspects the anticipated adjusted earnings per share gains of about $1 by 2026 could come sooner and prove conservative depending on when a freight market recovery happens and whether Knight-Swift is able to retain the revenue base and fleet gained from the deal.
“KNX began signaling that it was looking at truckload deals late in 2022,” Stephens analyst Jack Atkins said. “USX seemed like the most logical potential target. While this deal detracts from KNX’s efforts to diversify its revenue/profit base away from truckload into other modes, this transaction pivots the narrative away from ‘trough’ earnings to the company’s future earnings power, which we think is good for the stock.”
Scudder Law Firm served as transaction and legal adviser for Knight-Swift. J.P. Morgan Securities served as financial adviser to U.S. Xpress while King & Spalding served as its legal adviser.
Knight-Swift ranks No. 7 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. U.S. Xpress ranks No. 23 on the for-hire TT100 and No. 54 on the TT Top 100 list of the largest logistics companies in North America.
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