Arkansas Best reviewing acquisition possibilities (Updated)

Editor’s note: See updated info at the end of this post.

For companies holding cash, a down market could be a good time to buy.

Such is the foundation of the thinking behind the revelation Thursday (Jan. 29) that Fort Smith-based Arkansas Best Corp. has contracted with an “advisory firm” to review expansion opportunities. Arkansas Best said it would spend $800,000 for the review.

“Finally, I would like to mention the fact that we have engaged the services of an advisory firm to help us conduct the strategic planning review in order to identify potential acquisition candidates for investment outside of ABF,”  Arkansas Best President and CEO Robert Davidson said in a Thursday conference call to talk about the company’s fourth-quarter earnings report. “Economic times like these often present opportunities for companies like ours were strong and stable financial positions and available cash resources.”

The company reported Jan. 29 that the reduction in freight demand has forced the national trucking company to cut more than 2,000 jobs in 2008, with 1,100 of those cuts coming the the fourth quarter of 2008. Another 350 job cuts were planned for January, with a majority of the cuts happening at terminals around the country.

When pressed on the issue by market analysts who watch the actions of the publicly held trucking company, Davidson somewhat narrowed the potential acquisition candidates.

“We are looking at the broad field of transportation distribution and logistics. We are going try to stay in industries with some adjacencies something that where we can add value. But we have widened at this point,” Davidson explained.

At the end of 2008, Arkansas Best, despite the worst freight environment the company has seen in decades, was able to generate $105.33 million in cash from operations (cash flow). The company also has $219 million in short-term securities that could easily be made liquid for an acquisition. Arkansas Best is one of the few large trucking companies in the country that has not had to scramble to obtain or renew lines of credit.

But the “enviable” cash position, Davidson said, does not require that it be spent.

“(W)e are in no hurry to take steps to use that money, the money is not burning a hole in our pocket. But at the same time it is not the optimum use of our shareholder resources,  … We think we can invest those funds (in) businesses where we can add value and we are going to take a very careful and deliberate approach in examining those alternatives,” Davidson said during the conference call.

Arkansas Best officials were also asked if its cash might be used to buy company shares or boost dividends — both moves companies often use to attract shareholders and strengthen the stock price.

Judy McReynolds, the company’s senior vice president, chief financial officer and treasurer, said share buybacks and dividend increases are actions the company continually evaluates and compares to other alternatives to increase shareholder value.

Link here to the full transcript provided by Seeking Alpha.

UPDATED INFO
The following are two questions to which David Humphrey, spokesman for Arkansas Best Corp., responded.

The City Wire: What type of companies would Arkansas Best acquire?

Humphrey: “Our two major thoughts are, IF we do something: Do something we know about and in which we have experience (transportation, logistics, distribution) – Bob (Davidson) once said we won’t buy a company that makes computer chips or potato chips.”

“Only buy a company with a good management team that is able to offer value to their marketplace at a good price while providing a reasonable profit, much like ABF.”

“We want to fully review all options, including acquisitions, before choosing the best choice for the future direction of our company. We want to take actions that benefit our shareholders and our employees.”

TCW: What is the time frame for the review?

Humphrey: “We expect our work with this firm to end sometime in the second quarter of this year. However, if we decided to pursue an identified acquisition candidate, that process would probably take awhile, if it happened at all. In addition to their interaction with the advisory firm, our executives meet regularly to discuss and monitor this process.”

“As Bob described on the conference call, we are methodical, patient and deliberate and we don’t want to jump into something that is not right for our company. We don’t have a specific time frame. A number of elements, as I have described above, would have to come together in order for us to make an acquisition. The future viability of our company and the ability to increase shareholder value is of utmost importance in this process.”