LONDON, UK / ACCESSWIRE / April 11, 2017 / Active Wall St. blog coverage looks at the headline from Swift Transportation Co. (NYSE: SWFT) and Knight Transportation, Inc. (NYSE: KNX) as both companies announced on April 10, 2017, their merger in an all-stock transaction. This is the largest deal in the truckload business since the $3 billion XPO Logistics Inc.'s takeover of Con-way Inc. in October 2015. Register with us now for your free membership and blog access at:
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Commenting on the merger Kevin Knight, Executive Chairman of Knight Transportation said:
"When the two Companies began discussions, we had four goals in mind: create a Company with the best strategic position in our industry; identify significant realizable synergies that would create value for both sets of stockholders; create a business that over the long-term will operate at Knight's historical margins and financial returns; and agree on a leadership and corporate governance framework that will benefit all stakeholders."
Jerry Moyes, Founder of Swift Transportation added:
"The Knight and Moyes families grew up together, and the Knights helped me build Swift before starting their own Company and making it an industry leader in growth and profitability. I am confident that we have the right approach to maximizing the contribution of both teams, and I look forward to helping the Knight-Swift leadership team in any way I can to continue the legacy of both great Companies."
Details of the Merger Agreement
The Boards of Directors of both Companies have approved the merger. The merged Company will be known as Knight-Swift Transportation Holdings Inc. (Knight-Swift). The new Company will trade under the Knight's ticker "KNX" at the New York Stock Exchange. The merged Company will be headquartered in Phoenix, Arizona.
As per the new organization structure, both Companies will operate as separate brands while being managed by a holding Company. The merger will create a premier trucking Company with a fleet of approximately 23,000 tractors and 77,000 trailers and with a total workforce of 28,000 employees. For FY16, both Companies – Swift and Knight - generated total revenues of $5.1 billion, an adjusted operating income of $416 million, and an adjusted EBITDA of $806 million. Both Companies together have a debt of approximately $1.1 billion as on December 31, 2016. This puts the enterprise value of the combined Company at approximately $6 billion.
As per the merger agreement, the stocks of Swift and Knight will be converted into the shares of the new merged Company - Knight-Swift via a reverse stock split. Accordingly, each share of Swift will be converted into 0.72 shares of Knight-Swift and each share of Knight will be converted into one share of Knight-Swift. Once the merger is finalized, Swift's shareholders will hold 54% stake and Knight's shareholders will own the balance 46% in Knight-Swift. Legally, Knight will be the acquirer in this deal but stake wise, Swift will be the majority holder. The founder of Swift Transportation, Jerry Moyes and his family, will own 24% of Knight-Swift's stock post the merger. Knight-Swift will be paying quarterly dividends of $0.06 per share to its shareholders after the completion of the merger.
The deal is expected to be accretive to the adjusted EPS (earnings per share) and will also lead to tax savings of $15 million in H2 2017, $100 million in 2018, and $150 million in 2019. Apart from this, the deal will also result in cost synergies from sharing best practices, improving yield, economies of scale due to joint purchases, a larger geographical footprint and improved cash flows will help in reducing debts and payment of interest on the debts.
The Board of Directors of Knight-Swift will be made up of four directors currently with Swift's Board and all the rest of the directors will be from Knight's Board. Kevin Knight will be the Executive Chairman and Gary Knight will be the Vice Chairman of Knight-Swift's Board of Directors. Dave Jackson will be the CEO and Adam Miller will be the CFO of Knight-Swift.
The transaction is expected to close in Q3 2017 and is subject to regulatory approvals including approval from anti-trust regulators as well as other closing conditions. The founder of Swift Transportation, Jerry Moyes and his family, are majority shareholders of Swift and Kevin Knight and Gary Knight have a major stake in Knight Transportation, all of whom have agreed to vote in favor of the merger.
Reasons for the merger
In recent times profits in the trucking business have declined due to a number of factors including low demand, excess capacity, weak pricing etc. However, the scenario is gradually changing for the better and is expected to pick up in the later part of 2017. Competition though remains high. Schneider National Inc., one of the largest US trucking Companies and a close competitor of Swift Transportation, raised $550 million via an IPO as a part of its strategy growth strategy. Knight-Swift merger will allow the Company to take on the competition head-on and accelerate growth.
At the close of trading session on Monday, April 10, 2017, Swift Transportation's stock price surged 23.73% to end the day at $24.77. A total volume of 26.26 million shares were exchanged during the session, which was above the 3-month average volume of 2.16 million shares. The Company's share price has gained 45.02% in the past twelve months. The stock currently has a market cap of $3.31 billion.
At the closing bell, on Monday, April 10, 2017, Knight Transportation's stock surged 13.38%, ending the trading session at $34.75. A total volume of 17.83 million shares were traded at the end of the day, which was higher than the 3-month average volume of 880.84 thousand shares. In the last six months and previous twelve months, shares of the Company have advanced 22.93% and 42.45%, respectively. The stock is trading at a PE ratio of 30.06 and has a dividend yield of 0.69%.
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