A standstill agreement between Knight Transportation and USA Truck expires at the end of the month, but little is expected to change about the relationship between the two competitors.
USA Truck was fighting off an unwanted takeover attempt by Knight a year ago that included the filing of a federal lawsuit and other legal wrangling. In February the rival trucking and transportation companies agreed to what amounted to a truce, allowing USA Truck to continue working on a financial turnaround plan.
Knight, according to the agreement, was prohibited from voting or attempting to influence board of director selections or other actions during shareholders meetings. At the time of the agreement Knight owned 1.3 million shares, enough to warrant a significant voice in the direction of the company. Part of the agreement also stipulated that Knight could not purchase additional shares of USA Truck and further its takeover attempts.
As of Tuesday Knight will be free of restrictions on its purchasing power and voice, but Stephens Inc. analyst Brad Delco said pursuit of additional shares seems unlikely.
"It's a significant date, but I don't really expect much to change with that dynamic," Delco said.
As it stands now Knight is likely priced out of the market for USA Truck, which is financially stronger and less vulnerable than it was 18 months ago. Knight's offer in 2013 was for $9 a share, nearly $2 more than the stock was valued at the time. Over the past year shares have traded between $8.48 and $19.57.
Knight, forbidden by the agreement to expand its holdings above the 12.4 percent it held in February, could theoretically purchase additional shares once the Tuesday deadline comes and goes, but since May has sold more than 250,000 shares of USA Truck in five separate transactions that yielded $4.5 million. A total of 142,000 shares were sold in August for about $2.6 million. Knight sold 111,400 shares in May, generating about $1.9 million.
"They've sold down to 10 percent. That clearly says, as in any market, there are buyers and sellers of goods and services at a certain price," Delco said. "At this price, they're sellers. At the lower price they were buyers. That's the name of the game. Knight are disciplined stewards of capital."
When Knight first began purchasing USA Truck stock it paid $8.59 per share. USA Truck alleged in a lawsuit filed last year that Knight was purchasing stock based upon insider knowledge gained when the two companies talked about a potential merger. That lawsuit was later dropped as a result of the standstill agreement.
Knight has said little about USA Truck this year, last referring to its one-time target in a Jan. 29 filing of its 2013 annual report. At the time, Knight said the timing of its purchase limited its ability "to obtain liquidity from the stock" because of Securities & Exchange Commission regulations. Value of the stock at the time was around $17 million. Now its stake of 1.01 million shares is worth about $17.6 million.
United Shareholders for the Benefit of USAK, a combination of investors Baker Street Capital Management and Stone House, now controls 28 percent of USA Truck. Its holdings of more than 2.95 million shares are valued at about $51.6 million and resulted in the addition of two people to the company's board of directors.
USA Truck, which is in the process of winding down the third quarter, reported $722,000 in profit for the second quarter of 2014. It was the first positive quarter in three years.
Investor Adam Wyden holds a 3 percent stake in USA Truck and has been vocal in his criticism of company management and turnaround strategy. Wyden has expressed hope the company will be sold, but, like Delco, does not see Knight as a potential buyer.
With the way the stock price has increased over the past year, it is unlikely Knight would be willing to spend the money needed to buy USA Truck. Knight CEO Kevin Knight has expressed in the past that the company is interested in continuing to grow via acquisition.
"Kevin is trying to be disciplined," Wyden said. "We'll see, but I'm not convinced Kevin is the best buyer for the company. I can't blame him. I'm not holding my breath over Kevin Knight. There's always a buyer for anything at the right price. I don't think the price is right in this situation."
USA Truck stock ended trading Friday at $17.51 a share, up $0.31.
Business on 09/27/2014