USA Truck was able to avoid one takeover attempt, but some market watchers say the Van Buren-based trucking company may not be able to push back against the takeover attempt by Knight Transportation.
Knight made public its bid for USA Truck on Sept. 26. The $9 per share bid at the time was a 39% premium from USA Truck’s share price on Sept. 25, and a 58% premium compared to the Aug. 27 closing price – the day before Knight sent its first proposal letter to the USA Truck Board of Directors. The share purchase and assumption of liabilities creates a $242 million deal.
Officials with Knight announced Sept. 30 they had increased from 8% to 11.3% (1,192,364 shares) their ownership of USA Truck shares, and claimed that “several” large shareholders groups supported Knight’s $9 per share offer for USA Truck. On Oct. 1, Knight acquired more shares, boosting its ownership of USA Truck closer to 1,287,782 shares.
The USA Truck management and Board of Directors have said the Knight offer “substantially undervalues” the company and does not reflect the value of potential gains from ongoing turnaround initiatives.
USA Truck has reported four consecutive years of losses. During the first half of 2013, the company reported a loss of $3.5 million, better than the $8.4 million in the same period of 2012.
The company also enacted in November 2012 a “Rights Plan” that seeks to block a company or individual from owning more than 15% of USA Truck shares. The plan – essentially a poison pill provision – also puts in place a 10-day “redemption period” that gives USA Truck officials “the opportunity to negotiate” with anyone who seeks to buy shares beyond the 15% cap. The plan gives shareholders the right to “extinguish” the plan during the 2014 annual meeting.
At risk in a deal with Knight would be the more than 400 jobs at USA Truck’s corporate headquarters in Van Buren.
‘SERIOUS ABOUT THIS ACQUISITION’
In a Sept. 30 note to investors, analysts with William Blair & Company said Knight is serious about a deal with USA Truck. The report also suggested the deal would be positive for shareholders of both companies.
“In particular, we believe Knight would benefit from the greater scale and efficiencies created, and USA Truck shareholders would gain an attractive wealth creation event while not awaiting another restructuring effort. It is not clear what the next steps will be or how quickly events will move, but we believe Knight’s increasing position in USA Truck (now 11%) and the amount of value that the acquisition could create suggest a deal will likely go through eventually,” according to the note.
The report listed several ways the deal would benefit Knight and USA Truck owners. Those include:
• “While Knight has solid geographic coverage across the United States, it is particularly strong on the West Coast, and we believe USA Truck’s strength in the South and Midwest would strengthen Knight’s overall presence while providing more trucks to gain scale.”
• “USA Truck’s nearly 2,250 tractors would add more than 55% to Knight’s existing base. Given the recent relative balance of supply and demand in the market, we believe that acquisition is an effective way to add capacity and that Knight would mostly benefit from leverage on this larger platform and from significant operating efficiencies it could achieve.”
• “Although turnaround efforts are underway (and have been for some time) for USA Truck, the company has sustained operating losses for the last eight quarters. In our view, profitability could improve fairly quickly under Knight management; this is supported by Knight management’s belief that the deal would be accretive in 2014.”
In a post on Seeking Alpha, MTF Investing said Knight will “push towards an agreeable price” in the $12 per share range. Brad Delco, an analyst with Little Rock-based Stephens Inc., has said USA Truck has a market value of around $10.25 per share. A price near $12 per share would push the USA Truck market value closer to $125 million.
“This would be over the stated owners' equity of $105 million, and takes into account the value of the improved management and turnaround the company is going through,” noted the MTF Investing article. (Registration may be required to read the entire story.)
Convincing USA Truck officials to accept a higher per-share offer is not the only avenue open to Knight. Other options include submitting nominations for the two USA Truck Board positions open in the May 2014 proxy vote. Knight could also submit a shareholder proposal to extinguish the poison pill provision. If approved, the lack of an ownership cap would allow Knight to buy enough shares from institutional investors to acquire control.
Proposals for the 2014 proxy have to be submitted to USA Truck no later than Dec. 11.
Knight could also seek a proxy consent removal of the USA Truck Board of similar to the manner in which Glenview Capital Management changed the Board at Naples, Fla.-based Health Management Associates – the parent company of Sparks Health System in Fort Smith and Summit Medical Center in Van Buren.
Shares of USA Truck (NASDAQ: USAK) closed Tuesday (Oct. 8) at $8.99, up 5 cents. During the past 52 weeks the share price ranged from a $9.33 high to a $2.65 low.
Shares of Knight (NYSE: KNX) closed Tuesday at $16.59, down 14 cents. During the past 52 weeks the share price ranged from a $17.73 high to a $13.74 low.