USA Truck ‘seriously undervalued’

Trucking industry analyst Jack Waldo believes the Board of Directors at USA Truck have rejected a takeover attempt by Celadon Trucking because they believe USA Truck is “seriously undervalued” and a sale would not be in the best interests of shareholders.

Executives with Celadon Trucking Services announced Oct. 11 an interest in acquiring or merging with USA Truck, and asked USA Truck management to meet about a possible transaction. At risk in a possible deal would be the about 500 jobs at USA Truck’s corporate headquarters in Van Buren.

On Oct. 21, the USA Truck board said they are not are not interested in a deal with Celadon.

“Among other factors, the Board of Directors considered the recent management changes and the Board's desire to remain focused on increasing value through operational improvements. Accordingly, the Board of Directors unanimously decided to decline a meeting at this time,” noted the USA Truck statement.

WARNING IMPACT
A factor that spurred Celadon’s interest was an almost 30% drop in USA Truck’s market value after officials with the Van Buren trucking company warned on Aug. 22 that its third-quarter earnings would be lower than anticipated. The company said problems with new software and the old problems of a soft economy would result in a quarterly loss.

They weren’t kidding.

The company reported a loss of $4.305 million for the third quarter, compared to a $586,000 gain the 2010 period. For the first nine months of 2011, the company has lost $6.423 million, compared to a loss of $1.51 million in the 2010 period.

On Aug. 22, the share price closed at $10.95, for an estimated market capitalization of $114.497 million. After the third quarter warning, the share price fell to $7.70, dropping the market cap to an estimated $80.514 million.

About a month later, Indianapolis-based Celadon began buying the lower-valued USA Truck shares. Celadon noted in its Securities & Exchange filing of Oct. 11 that it had purchased $4.66 million in USA Truck shares, or almost 6.3% of the company.

JOBS IMPACT
Waldo, an analyst with Little Rock-based Stephens Inc., says the Celadon move does raise the possibility that other bids will be made on USA Truck. However, he believes Celadon “makes the most sense” for a buyer because the companies have a lot of similarities.

A possible concern in the Fort Smith-Van Buren area is a Celadon acquisition of USA Truck would leave very little of a company that employs more than 500 in the area.

Celadon has a history of swallowing up companies, using key personnel (especially drivers), assets and disposing of the rest. The company in late 2008 bought Little Rock-based Continental Express in a $24 million deal. At the time, Continental was the third-largest privately held trucking company in Arkansas.

Waldo said no one knows for sure what Celadon would do with the corporate operation in Van Buren if it acquires USA Truck.

‘DRACONIAN SCENARIO’
USA Truck shares (NASDAQ: USAK) continue to lag behind historical prices. The share price closed Friday (Oct. 28) at $8.39. During the past 52 weeks the share price has ranged from a $14.16 high to a $6.75 low. The share price has traded in the past above $30.

Waldo said the low share prices compared to past prices clearly show potential value of the company, and said that value is a key reason why the USA Truck board has decided to reject a buyout.

He does believe USA Truck is capable of financially holding out and surviving the ongoing lackluster economy. Waldo said USA Truck has enough cash and security agreements to survive, and it would “take a pretty draconian scenario,” for the company to fail.

If trends continue, 2011 could mark the third consecutive year of a losses for USA Truck. In 2010, the company reported a loss of $3.308 million, and a $7.177 million loss in 2009.