Forward Air has hired two prominent investment banks to lead the formal sale process, people close to the matter told Freightwave. Pressure on the express trucking company’s board of directors to sell has increased in recent weeks following its messy merger with freight forwarder Omni Logistics.
An Oct. 7 letter from activist investor Alta Fox, which owns a 3% stake in Forward (NASDAQ:FWRD), called on the company to begin the sale process. In the letter, holders of about 25% of the company’s stock said they were also seeking changes to correct Forward’s “misallocation of capital and reckless oversight.”
In August, Clearlake Capital, which owns 14% of Forward, changed its filing status with the Securities and Exchange Commission from passive to activist. Irenic Capital and Ancora Advisors, which have a combined 7% stake, are pushing for similar changes.
Some holders say a sale to private equity could represent a premium to the current stock price of $36.56 (as of 3:40 p.m. ET Thursday). Forward’s stock price began to decline shortly after the acquisition was announced in August 2023, plummeting 90% to a low of $11.21 in May. The recent rise in the stock price is likely related to speculation that the company could pursue a more immediate solution, including a sale.
Activist shareholders say private equity ownership will allow the company to eliminate large amounts of debt (taken on as part of financing the deal) and develop new market entry strategies away from the public eye. states.
Forward Air ended the second quarter with $1.7 billion in net debt. This is 5.2 times adjusted earnings before interest, taxes, depreciation and amortization. This level is considered to be very high for a growth-oriented acquiring company. Forward remains within its allowed debt limits and is on track to be cash flow positive at some point in the second half of this year.
But Omni’s integration and expected revenue and cost synergies appear to be taking longer than some shareholders are willing to tolerate.
“We now have an opportunity to do the right thing by listening to the resonant feedback from our investors and implementing a formal sales process that maximizes value for all shareholders,” Alta Fox’s recent letter said. “It is given.” “By taking this step, you will not only maximize your company’s potential, but also help you undo the damage caused by the poor decisions that plagued your tenure.”
Omni merger fraught with pitfalls
Forward’s acquisition of Omni seemed shrewd at first glance. This will double the company’s size and provide a direct sales platform to shippers that it has struggled to build in-house. Selling directly to shippers eliminates middlemen and allows Forward to double profits in its inter-airport transportation business.
However, Omni was a forwarding customer of Forward and a direct competitor of Forward’s other forwarding customers. Some of those customers quickly pushed back, concerned that Forward could use their data to approach shippers directly and potentially lock them out of business. They were also concerned that Omni’s parent company with Forward would give it pricing advantages and preferential access to Forward’s circuit transportation network.
Investors were upset that they were not given the right to vote on the deal. The deal was assembled through a series of trades aimed at avoiding a shareholder vote that prompted a class-action lawsuit in Tennessee state court last fall.
Investors were also concerned about the high price of $3.2 billion, which was higher than Forward’s market capitalization of about $3 billion at the time. The deal also requires Forward to assume $1.4 billion in Omni’s net debt and grant a 38% stake to private equity backers Ridgemont Equity Partners and EVE Partners, the complaint says. The company said this amounted to a change in voting rights management.
The acquisition was ultimately completed in January after Forward sought to break the deal with minimal reductions. Since then, Forward has made changes to its leadership and board of directors and continues to integrate Omni. However, some shareholders appear prepared to cut their losses by pushing the company to a faster conclusion.
FreightWaves has reached out to Forward Air for comment.
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