Knight-Swift Transportation Holdings Inc. (NYSE: KNX)
("Knight-Swift") and U.S. Xpress Enterprises, Inc. (NYSE: USX)
("U.S. Xpress") today announced an agreement under which
Knight-Swift will acquire U.S. Xpress for a total enterprise value
of approximately $808 million, excluding transaction costs. The
transaction has been unanimously approved by the Board of Directors
of Knight-Swift and a Special Committee of the independent
directors of the U.S. Xpress Board of Directors (“Special
Committee”). It is expected to close late in the second quarter or
early third quarter of 2023, subject to customary closing
conditions.
Highlights
- Knight-Swift revenue base to grow by nearly 30%; Knight-Swift
management targets high-80s adjusted operating ratio(1) and
mid-teens return on invested capital(1) for U.S. Xpress by calendar
2026
- U.S. Xpress stockholders to receive 310% premium over U.S.
Xpress’ closing stock price on March 20, 2023; U.S. Xpress Special
Committee determined compelling cash consideration maximizes value
for U.S. Xpress stockholders
- U.S. Xpress brand and separate operations to continue
- Knight-Swift growth and diversification strategy remains
intact, with low leverage and strong cash flows to support ongoing
national LTL build-out and full range of capital allocation
alternatives
Knight-Swift CEO, Dave Jackson, commented, “The opportunity to
add one of the largest and most well-known brands in our industry,
with significant opportunity to improve earnings, gain customers
and reach more professional drivers, was very compelling to us. We
expect to apply the same playbook that proved successful in the
Knight-Swift merger as we share best practices, improve operations
and work together to help U.S. Xpress become the best that it can
be. Although it will take time, particularly given the current
freight environment, we would not have pursued the transaction
unless we were confident in achieving our return thresholds within
a few years. Beyond that, we will continue to work with the U.S
Xpress team in pursuit of the performance levels of our other
truckload businesses over the next several years, so the
opportunity for our stockholders is substantial. Moreover, this
transaction will not slow down the geographic expansion of our LTL
network or our other growth initiatives, as our financial and other
resources remain significant.”
U.S. Xpress CEO, Eric Fuller, said: “We are very pleased to
deliver to our stockholders the opportunity for near-term liquidity
at a significant premium. Additionally, joining the Knight-Swift
team is an exciting opportunity for our people, our customers, and
the Chattanooga and other communities we call home. The increased
scale, operating expertise and resources of the combined entity
will allow U.S. Xpress to pursue new levels of service and
efficiency. We’re delighted that U.S. Xpress will continue to
operate as an independent brand and will do so with the support and
partnership of one of North America’s strongest transportation
companies.”
John Rickel, Lead Independent Director and Chair of the U.S.
Xpress Special Committee, said: “The Special Committee evaluated
the transaction against the company’s standalone prospects and
current macroeconomic environment and unanimously determined that
the compelling and certain cash consideration is in the best
interest of all U.S. Xpress stakeholders and maximizes value for
its stockholders. Knight-Swift is a proven operator with a strong
track record in the industry, and we are confident this transaction
is the best path forward for U.S. Xpress.”
Strategic Rationale and Financial
Goals
A slide presentation containing additional information about the
transaction and goals has been posted to Knight-Swift’s investor
relations site at investor.knight-swift.com.
Based on 2022 results, U.S. Xpress is expected to add
approximately $2.2 billion in total operating revenue (including
$1.8 billion in truckload revenue), 7,200 tractors, and 14,400
trailers to Knight-Swift’s consolidated enterprise. After the
transaction, Knight-Swift’s consolidated revenue run-rate is
expected to approach $10 billion, while the truckload fleet will
have approximately 25,000 tractors and 93,000 trailers.
For 2022, U.S. Xpress total revenue comprised approximately 36%
dedicated truckload, 34% U.S. Xpress Inc. irregular route
truckload, 14% Total Transportation of Mississippi irregular route
truckload, and 16% brokerage. Portions of the U.S. Xpress business
are performing reasonably well, such as the Total Transportation
subsidiary, while the most underperforming irregular route business
unit matches up well with Knight-Swift’s strengths.
The transaction is expected to be accretive to Knight-Swift’s
adjusted earnings per share(1) starting in 2024. Knight-Swift is
targeting a high-80s adjusted operating ratio(1) by calendar 2026,
producing a mid-teens return on invested capital(1) for the
consolidated U.S. Xpress business unit. Further, management expects
the U.S. Xpress truckload business to perform similarly to
Knight-Swift’s other truckload business units over time based on
Knight-Swift’s historical execution and success with
acquisitions.
Knight-Swift operates one of the largest asset-based truckload
fleets in North America while delivering leading profitability. The
truckload business generates most of the capital Knight-Swift
deploys for growth, diversification, and returning capital to
shareholders, such as the $1.5 billion invested in acquisitions in
the less-than-truckload sector and $733 million spent on share
buybacks and dividends over the past three years. For perspective,
in 2013, the year before the acquisition of Barr-Nunn, Knight
Transportation’s truckload segment generated $822 million in
revenue and $106 million in GAAP operating income (12.9% operating
margin). By 2022, through internal growth and several acquisitions,
Knight-Swift’s consolidated truckload segment generated $4.5
billion in revenue and $747 million in GAAP operating income (16.5%
operating margin).
Transaction Terms
In the transaction, U.S. Xpress stockholders will receive $6.15
per share in cash for each outstanding share of U.S. Xpress Class A
and Class B common stock, except Max Fuller, Executive Chairman of
U.S. Xpress, and Eric Fuller and related entities (collectively,
the “Fullers”) will rollover a portion of their shares of U.S.
Xpress into an approximately 10% interest in a new Knight-Swift
subsidiary formed to hold the U.S. Xpress business post-closing.
The rollover interests will be subject to optional and mandatory
redemption provisions based on the future performance of the U.S.
Xpress business post-closing. As minority owners in the future U.S.
Xpress, the Fullers will have a continuing economic interest and be
fully aligned with Knight-Swift in ensuring that U.S. Xpress is
best positioned for success, including by fostering ongoing
relationships with key customers and vendors, and maintaining other
important business relationships. Additionally, the Fullers have
agreed to certain restrictive covenants.
The total enterprise value of $808 million for U.S. Xpress
represents Knight-Swift assuming U.S. Xpress’ $484 million of
outstanding debt and finance leases and purchasing its outstanding
equity for $324 million, or $6.15 per share, and excludes its $336
million of operating lease liabilities for the purposes of this
calculation (debt and lease balances as of December 31, 2022). As
of December 31, 2022, U.S. Xpress had approximately $96 million in
outstanding borrowings under its secured revolving credit facility
and $388 million in other long-term debt and finance leases.
Knight-Swift expects to repay and terminate the U.S. Xpress secured
revolving credit facility at closing while seeking to retain in
place U.S. Xpress’ existing primarily fixed-rate equipment and real
estate financing arrangements. Knight-Swift had approximately $1.3
billion unrestricted cash and available liquidity on December 31,
2022, a portion of which will fund the transaction.
Transition Plan
After the closing of the transaction, U.S. Xpress will continue
as a separate brand and operation to minimize disruptions for the
driving associates, shop and office employees, and customers. At
the same time, cross-functional teams made up of leaders from
Knight, Swift, and U.S. Xpress will work together to leverage
economies of scale, freight network efficiencies, and best
practices.
Through closing, U.S. Xpress will continue to be led by its
current senior management. At closing, the Fullers along with Eric
Peterson, CFO, will transition out of their executive officer roles
while remaining available to ensure a smooth transition. Tim
Harrington and Josh Smith, both executives at Swift and members of
the teams that helped achieve significant margin improvement
following the Knight-Swift merger, will join U.S. Xpress as
President and CFO, respectively. Tim and Josh will be supported by
Knight-Swift’s deep bench of subject matter experts, and their
prior transition experience is expected to make them excellent
partners for working with the U.S. Xpress team.
Mr. Jackson commented: “The Fuller family, along with their
co-founders, the Quinns, built one of the largest and fastest
growing truckload carriers in the country, which is a significant
accomplishment in such a fiercely competitive industry. We’re
honored to lead the next phase of U.S. Xpress’ development, and we
are pleased that the Fullers are willing to link a portion of their
economic outcome to ours to mitigate the transition risk and will
be aligned with us in ensuring that U.S. Xpress becomes the best it
can be.”
Approvals and Expected
Timing
The transaction is not conditioned on financing and is subject
to regulatory and other customary conditions, including approval of
holders of a majority of the voting power of the outstanding shares
of U.S. Xpress Class A and Class B Common Stock voting together,
approval of holders of a majority of the outstanding shares of each
class of U.S. Xpress common stock, voting separately, and approval
of holders of a majority of all outstanding U.S. Xpress’ shares not
held by the Fullers, the officers and directors of U.S. Xpress, or
Knight-Swift (a “majority-of-the minority approval”).
The Fullers, which together hold approximately 29% of the
outstanding shares of U.S. Xpress common stock representing
approximately 58% of the U.S. Xpress voting power, have delivered
to the members of the U.S. Xpress Special Committee an irrevocable
proxy to vote their shares in favor of the transaction. Upon
completion of the transaction, which is expected late in the second
quarter or early third quarter of 2023, U.S. Xpress will de-list
from the New York Stock Exchange.
Advisors
Scudder Law Firm, P.C., L.L.O. of Lincoln, Nebraska served as
Knight-Swift’s transaction and legal advisor, and Fried, Frank,
Harris, Shriver & Jacobson LLP served as its legal advisor in
connection with the transaction. J.P. Morgan Securities LLC served
as exclusive financial advisor to the Special Committee of
independent directors of the U.S. Xpress board of directors, and
King & Spalding LLP served as its legal advisor. Holland &
Hart LLP served as legal advisor to the Fuller family.
About U.S. Xpress
U.S. Xpress is based in Chattanooga, Tennessee and generated
approximately $2.2 billion in total operating revenue in 2022 while
serving its blue-chip customer base through a network of
approximately 14 facilities, primarily located across the eastern
United States. U.S. Xpress’ fleet includes approximately 7,200
tractors and 14,400 trailers, including tractors provided by
approximately 1,000 independent contractors. The company’s highly
skilled workforce includes approximately 7,900 drivers (including
independent contractors), 300 maintenance technicians, and 2,200
non-driver employees.
About Knight-Swift
Knight-Swift Transportation Holdings Inc. is one of North
America's largest and most diversified freight transportation
companies, providing multiple truckload transportation,
less-than-truckload, logistics, and business services to the
shipping and transportation sectors. Knight-Swift uses a nationwide
network of business units and terminals in the United States and
Mexico to serve customers throughout North America. In addition to
operating the country's largest tractor fleet, Knight-Swift also
contracts with third-party equipment providers to provide a broad
range of services to its customers while creating quality driving
jobs for driving associates and successful business opportunities
for independent contractors.
Additional Information about the
Transaction and Where to Find It
This communication is being made in respect of the proposed
acquisition by Knight-Swift of U.S. Xpress. A meeting of the
stockholders of U.S. Xpress will be held to seek stockholder
approval in connection with the proposed acquisition. U.S. Xpress
will file with the Securities and Exchange Commission
(“SEC”) a proxy statement and other
relevant documents in connection with the proposed transaction. The
definitive proxy statement will be sent or given to the
stockholders of U.S. Xpress and will contain important information
about the proposed transaction and related matters. INVESTORS AND
STOCKHOLDERS OF U.S. XPRESS SHOULD READ THE DEFINITIVE PROXY
STATEMENT AND OTHER RELEVANT MATERIALS CAREFULLY AND IN THEIR
ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT U.S. XPRESS, KNIGHT-SWIFT, AND THE
TRANSACTION. Investors may obtain a free copy of these materials
(when they are available) and other documents filed by U.S. Xpress
with the SEC at the SEC’s website at www.sec.gov, at U.S. Xpress’s
website at www.usxpress.com or by sending a written request to the
U.S. Xpress’s Secretary at 4080 Jenkins Road, Chattanooga,
Tennessee 37421.
Participants in the
Solicitation
U.S. Xpress and its directors, executive officers and certain
other members of management and employees may be deemed to be
participants in soliciting proxies from its stockholders in
connection with the transaction. Information regarding the persons
who may, under the rules of the SEC, be considered to be
participants in the solicitation of U.S. Xpress’s stockholders in
connection with the transaction will be set forth in U.S. Xpress’s
definitive proxy statement for its stockholder meeting. Additional
information regarding these individuals and any direct or indirect
interests they may have in the transaction will be set forth in the
definitive proxy statement when it is filed with the SEC in
connection with the transaction.
Forward Looking
Statements
This communication contains “forward-looking statements,” within
the meaning of Section 27A of the Securities Act of 1933, Section
21E of the Securities Exchange Act of 1934 and the Private
Securities Litigation Reform Act of 1995 that provides a safe
harbor for forward-looking statements, including statements
relating to the completion of the transaction, all statements that
do not relate solely to historical or current facts, and
expectations, intentions or strategies regarding the future. These
forward-looking statements are generally denoted by the use of
words such as “anticipate,” “believe,” “expect,” “intend,” “aim,”
“target,” “plan,” “continue,” “estimate,” “project,” “may,” “will,”
“should,” “could,” “would,” “predict,” “potential,” “ongoing,”
“goal,” “can,” “seek,” “designed,” “likely,” “foresee,” “forecast,”
“project,” “hope,” “strategy,” “objective,” “mission,” “continue,”
“outlook,” “potential,” “feel,” and similar expressions. However,
the absence of these words or similar expressions does not mean
that a statement is not forward-looking. Statements in this
announcement that are forward looking may include, but are not
limited to, statements regarding the benefits of the proposed
transaction with U.S. Xpress and the associated integration plans,
expected synergies and revenue opportunities, expected branding,
anticipated future operating performance and results of
Knight-Swift, including statements regarding anticipated earnings,
margins, and cash flows, anticipated future liquidity, anticipated
availability of future resources, financial or otherwise,
anticipated growth opportunities, anticipated fleet size, the
availability of the transaction consideration, the expected
management and governance of U.S. Xpress following the transaction
and the expected timing of the closing of the proposed transaction
and other transactions contemplated by the proposed transaction. By
their nature, all forward-looking statements are not guarantees of
future performance or results and are subject to risks and
uncertainties that are difficult to predict and/or quantify. Such
risks and uncertainties include, but are not limited to: the
occurrence of any event, change or other circumstance that could
give rise to the right of Knight-Swift or U.S. Xpress or both of
them to terminate the proposed transaction, including circumstances
requiring U.S. Xpress to pay Knight-Swift a termination fee
pursuant to the transaction agreement; the failure to obtain
applicable regulatory or U.S. Xpress stockholder approval in a
timely manner or otherwise; the risk that the transaction may not
close in the anticipated timeframe or at all due to one or more of
the other closing conditions to the transaction not being satisfied
or waived; the risk that there may be unexpected costs, charges or
expenses resulting from the proposed transaction; risks related to
the ability of Knight-Swift and U.S. Xpress to successfully
integrate the businesses and achieve the expected synergies and
operating efficiencies within the expected timeframes or at all and
the possibility that such integration may be more difficult, time
consuming or costly than expected; risks that the proposed
transaction disrupts Knight-Swift’s or U.S. Xpress’ current plans
and operations; the risk that certain restrictions during the
pendency of the proposed transaction may impact Knight-Swift’s or
U.S. Xpress’ ability to pursue certain business opportunities or
strategic transactions; risks related to disruption of each
company’s management’s time and attention from ongoing business
operations due to the proposed transaction; continued and
sufficient availability of capital and financing; the risk that any
announcements relating to the proposed transaction could have
adverse effects on the market price of Knight-Swift’s and/or U.S.
Xpress’ common stock or operating results; the risk that the
proposed transaction and its announcement could have an adverse
effect on the ability of Knight-Swift and U.S. Xpress to retain and
hire key personnel, to retain customers and to maintain
relationships with each of their respective business partners,
suppliers and customers and on their respective operating results
and businesses generally; the risk of litigation that could be
instituted against the parties to the agreement or their respective
directors, affiliated persons or officers and/or regulatory actions
related to the proposed transaction, including the effects of any
outcomes related thereto; risks related to changes in accounting
standards or tax rates, laws or regulations; risks related to
unpredictable and severe or catastrophic events, including but not
limited to acts of terrorism, war or hostilities (including effects
of the conflict in Ukraine), cyber-attacks, or the impact of the
COVID-19 pandemic or any other pandemic, epidemic or outbreak of an
infectious disease in the United States or worldwide on
Knight-Swift’s or U.S. Xpress’ business, financial condition and
results of operations, as well as the response thereto by each
company; and other business effects, including the effects of
industry, market, economic (including the effect of inflation),
political or regulatory conditions. Also, Knight-Swift’s and U.S.
Xpress’ actual results may differ materially from those
contemplated by the forward-looking statements for a number of
additional reasons as described in Knight-Swift’s and U.S. Xpress’
respective SEC filings, including those set forth in the Risk
Factors section and under any “Forward-Looking Statements” or
similar heading in Knight-Swift’s or U.S. Xpress’ respective most
recently filed Annual Report on Form 10-K for the year ended
December 31, 2022 and Knight-Swift’s and U.S. Xpress’ Current
Reports on Form 8-K.
You are cautioned not to place undue reliance on Knight-Swift’s
or U.S. Xpress’ forward-looking statements. Knight-Swift’s or U.S.
Xpress’ respective forward-looking statements are and will be based
upon each company’s management’s then-current views and assumptions
regarding Knight-Swift’s proposed transaction with U.S. Xpress,
future events and operating performance, and are applicable only as
of the dates of such statements. Neither Knight-Swift nor U.S.
Xpress assumes any duty to update or revise forward-looking
statements, whether as a result of new information, future events,
uncertainties or otherwise.
If the proposed transaction is consummated, U.S. Xpress’
stockholders (other than the rollover holders) will cease to have
any equity interest in U.S. Xpress and will have no right to
participate in its earnings and future growth.
(1) Non-GAAP Financial
Measures
This press release includes statement’s regarding Knight-Swift
management’s general expectations for Knight-Swift’s future
adjusted earnings per share, adjusted operating ratio, and return
on invested capital, which are non-GAAP financial measures.
Knight-Swift management believes that its general expectations
regarding these non-GAAP financial measures are useful to analysts
and investors. Knight-Swift is unable to provide without
unreasonable effort a reconciliation to GAAP of its general
expectations with respect to these forward-looking non-GAAP
measures because it is not possible to predict with a reasonable
degree of certainty the information necessary to calculate such
measures on a GAAP basis because such information is dependent on
future events that may be outside of Knight-Swift’s control. The
unavailable information could have a significant impact on
Knight-Swift’s GAAP financial results.
Adjusted earnings per share is defined as earnings per diluted
shares net of amortization of intangibles, impairments, legal
accruals, and transaction fees.
Adjusted operating ratio is defined as operating expenses, net
of fuel surcharge, amortization of intangibles, impairments, legal
accruals, and transaction fees, expressed as a percentage of
revenue, excluding fuel surcharge.
Return on invested capital is defined as NOPAT/Invested Capital.
NOPAT is defined as adjusted operating income multiplied by an
assumed effective income tax rate for financial reporting purposes
of 25%. Adjusted operating income is defined as total revenue less
fuel surcharge revenue, less operating expenses, net of net of fuel
surcharge, amortization of intangibles, impairments, legal
accruals, and transaction fees. Invested capital is defined as the
cash paid for the equity of U.S. Xpress (including the rollover
shares) plus transaction expenses, plus the long-term debt, finance
leases, and operating lease right-of-use liabilities assumed in the
transaction, net of cash acquired.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230321005339/en/
For Knight-Swift: David Jackson, President and CEO, Adam Miller,
CFO, or Brad Stewart, Investor Relations (602) 606-6349
For U.S. Xpress: Investor Contact: Matt Garvie, Vice President,
Investor Relations, (423)-633-7153, mgarvie@usxpress.com
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