Van-Buren-based USA Truck Inc. has rebuffed acquisition plans by Knight Transportation Inc., but Knight is moving forward, taking its offer to the struggling company’s shareholders.
On Thursday, Knight, a Phoenix-based truckloadtransportation company, offered $9 a share, putting the total value of the deal at $242 million, including USA Truck’s $147 million in debt. Shares of USA Truck zoomed upward, gaining 36 percent to close at $8.80 on the Nasdaq exchange.
A spokesman for USA Truck declined to comment Thursday on Knight’s move. USA Truck has been fighting running, consecutive quarterly losses for two years and is in the middle of a turnaround plan. It has put in place a stockholder-rights plan, known as a poison pill, to make hostile takeover attempts costly.
USA Truck transports general commodities throughout the U.S. and parts of Canada and Mexico and as of March had about 3,000 employees, including about 2,320 drivers, according to the company’s 2012 annual report.
In a release, Knight Transportation’s chief executive officer, Kevin Knight, said his company and USA Truckhave complementary service lines and that combined they would be a stronger transportation company and better positioned to provide value to their shareholders. He said that if the acquisition goes forward, his company can meaningfully improve USA Truck’s financial per-formance.
“We are confident that USA Truck shareholders will share our strong belief that Knight’s $9.00 per share all cash, premium proposal would provide significant and immediate cash value that is significantly more attractive than USA Truck’s stand alone prospects,” Knight said in the release.
A spokesman for Knight declined to comment further on the release.
In a filing with the U.S. Securities and Exchange Commission on Thursday, Knight Transportation reported it owned 829,946 shares of USA Truck, about 8 percent of the company’s outstanding shares. According to Yahoo Finance, 21 percent of the USA Truck’s shares are held by insiders and by those with at least a 5 percent stake, with 76 percent of outstanding shares owned by institutional investors and mutual funds.
Knight reported in the same filing that multiple attempts to reach an acquisition deal with USA Truck were rejected. Knight said that its Aug. 28 offer of $9 a share was considered inadequate and USA Truck’s board of directors said the company was not for sale. As a result, Knight opted to publicly disclose its offer.
Shares of Knight were up up 61 cents, or nearly 4 percent, on the news and closed Thursday at $16.60 on the New York Stock Exchange. The company’s shares have traded as low as $13.74 and as high as $17.73 over the past year.
Michael Pakko, the chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock, called the situation a classic hostile-takeover scenario. He noted that both sides, the management of USA Truck and that of Knight, are confident they have a handle on best ways to turn around the ailing trucking outfit.
“They both see value in the company,” Pakko said of the two groups. “It will be up to the shareholders to decide who they believe.”
USA Truck has had eightconsecutive losing quarters, including a record $6.1 million loss in the third quarter of 2012. It reported a net loss of $17.5 million in 2012 and $10.8 million in 2011. The company has not posted an annual profit since 2008.
In July, the company reported losing $1 million for the second quarter, compared with a loss of $3.5 million for the same period last year. At the time, John Simone, USA Truck’s president and chief executive, said the company was continuing to narrow its losses and its turnaround plan seemed to be gaining traction. In February, Simone was brought in to head the company’s plans to right itself.
“While we are encouraged by our progress, we are not satisfied and have not yet achieved our top priorities of returning to profitability and restoring shareholder value,” Simone said in an earnings release.
In November, USA Truck implemented a stockholderrights plan to avoid hostile takeovers. The poison pill floods themarket with new shares of stock when certain conditions are met, making purchasing a large stake prohibitively expensive.
ISS Proxy Advisory Services of Rockville, Md., recommends that companies such as USA Truck submit a poison pill to shareholders for a vote within 12 months of adoption. USA Truck set that vote for May 2014, 18 months after its adoption.
Robert Peiser, a former chief executive officer and president of an air-medical service provider company, was appointed chairman of USA Truck’s board of directors in November. He received 3,425,810 votes for reelection, with 4,979,433 withheld. Because he didn’t receive a majority of favorable votes, policy required his conditional resignation.
In May, the USA Truck’s board of directors rejected Peiser’s conditional resignation, saying it was in the best interest of the company and its stockholders not to accept the resignation.
Nearly two years ago, truckload carrier Celadon Group Inc., made merger overtures to USA Truck in 2011, buying a little more than 6 percent of the company. The move was rejected by USA Truck’s broad of directors, and Celadon eventually sold its stake in 2012.
In a report by Wells Fargo Securities, senior analyst Anthony Gallo said a turnaround acquisition by Knight would be a strong strategy to grow earnings, noting that the management depth at Knight is strong. He said that while turnarounds carry risks, Knight is recognized in the industry for its operational excellence.
According to a Bank of America Merrill Lynch report by research analyst Ken Hoexter, Knight’s bid to take over USA Truck would increase Knight’s fleet of nearly 4,000 tractors by nearly 50 percent. He notes if the deal goes forward, the acquisition of USA Truck would be the fifth such move by Knight over the past 15 years and would be by far the largest.
Business, Pages 25 on 09/27/2013