Forward Air investor claims harassment by Omni after merger pushback
Ancora Holdings Group, an activist investor in Forward Air, says Omni Logistics is “seeking to intimidate and threaten” it by “sending legal missives to the firm.” The alleged actions stem from the investment firm’s public criticism of a $3.2 billion merger proposal between the companies.
An open letter from Ancora to Omni released Thursday evening reiterated complaints the firm previously voiced about the deal but also alleged Omni has made “efforts to suppress opposition” to the transaction.
“We believe Omni’s response of unleashing an army of aggressive law firms on a top shareholder of Forward Air for vocalizing our concerns is not only shameful, but telling of the desperate state Omni finds itself in today,” Ancora said.
“Subpoenas and document requests from your counsel, Wachtell, Lipton, Rosen & Katz (“Wachtell”), will not deter us from continuing to vocalize our views as to why terminating the prospective deal with Omni is both a logical and necessary step at this time.”
A separate Forward (NASDAQ: FWRD) shareholder group was able to temporarily block the transaction at the end of September while a Tennessee court contemplated a more permanent injunctive action that could potentially allow a court to determine if shareholders should be allowed to vote on the deal. The restraining order was ultimately dissolved by the court last month. However, that’s when Forward made public its belief that Omni had breached pre-closing terms and announced it was looking to terminate the deal.
Omni followed with a lawsuit asking a Delaware court to force Forward to the closing table. Forward countered on Monday, asking the court to let it out of the deal, reiterating its estimation that Omni has breached the agreement.
A Jan. 19 court date has been set in Delaware regarding the dispute between the two companies while the other group of shareholders is still seeking the right to vote in a Tennessee court.
Omni has maintained it has complied with all pre-closing requirements and stands by the merits of the deal.
“This combination represents a once-in-a-generation opportunity to cause a seismic shift in the industry and ‘change the model,’” a Friday letter from Omni’s board to Forward’s shareholders read. “It allows Forward Air to have a direct relationship with the customer, instead of through an intermediary. It removes a layer of cost and the customer wins.”
Omni said it wasn’t for sale when it was approached by Forward and it has turned down “numerous world-class logistics companies and investment firms” in the past “because none of these options would have enabled Omni to accelerate its growth faster than it could on its own.”
Omni said the deal creates a “lowest-cost provider” in the premium less-than-truckload market and provides Forward with access to its large, blue-chip customer base and ample cross-sell opportunities.
Ancora’s opposition to the transaction stems from the purchase price, the amount of debt Forward will take on to fund it and a perceived transition of power into the hands of Omni’s stakeholders.
It also questioned why the deal is being pushed through without a shareholder vote, among other things.
An initial price tag of $3.2 billion would value Omni at 18 times adjusted earnings before interest, taxes, depreciation and amortization and as much as 30 times on an unadjusted basis. However, expected deal synergies of $125 million may lower those multiples meaningfully. But the deal math is based on a 12-month period ending in June. Full-year 2023 will likely produce weaker results in comparison.
The deal also ups Forward’s debt by $1.85 billion, takes leverage to roughly four times EBITDA and results in more than $190 million in interest expense, Ancora said.
“Since the publication of our investor presentation, there has been further deterioration in operating results for nearly all publicly traded transportation and logistics companies, leading us to believe that Omni faces additional financial strain today,” the letter read. “Perhaps Omni’s growing debt burden, which we understand to be $1.44 billion, is the real motivator for getting this deal over the line.”
Ancora said the deal also shifts control of Forward away from shareholders and into the hands of Omni, including its private equity backers Ridgemont Equity Partners and EVE Partners. If the preferred equity issued to fund the transaction were converted to common stock following the closing, Omni stakeholders would end up with 38% of the voting rights.
Forward’s existing shareholders could vote against the conversion, but the company would be required to pay a dividend of approximately 13% on those shares, according to court filings.
The deal structure gives Omni stakeholders four board seats and its CEO the role of president at the combined entity. Omni’s shares in the company would also be required to vote for future board-chosen director nominees, which Ancora believes ensures the group ongoing control.
“Forward Air investors’ hands are effectively tied as the terms of the convertible preferred stock were intentionally structured to force us to vote in favor of conversion, and in doing so — our own dilution,” the letter stated.
Omni said it has not tried to renegotiate terms following a sell-off in the stock. The equity that would be issued is based on the price of Forward’s shares at the time of closing and not tethered to a specific purchase price, meaning Omni, too, is subject to the decline in value.
“As future significant shareholders in the combined company, our incentives are fully aligned with yours,” Omni said. “We are not looking for a quick exit. The transaction is not for cash — it is for equity in the go-forward combined company. We believe in it, and we intend to be in it for the long haul.”
Longer term, Omni believes the combined entity will garner higher valuation multiples and generate significant cash flows, allowing it to quickly deleverage.
Forward announced new long-term financial targets on Tuesday, which didn’t include a business combination with Omni.
This isn’t Forward’s first dustup with Ancora. The activist investor successfully altered Forward’s path in 2021, leveraging a 5% equity stake to land two board seats. Its complaint at the time centered on the company’s lagging valuation, which it asserted was due to Forward’s continued diversification into lower-margin businesses.
“We are not going to change course now based on Omni and Wachtell’s attempts to stifle our voices and quell shareholder democracy through harassment,” the letter stated. “Rest assured, we will continue to expose these intimidation tactics if they continue.”
Shares of FWRD are off 40% since the deal was announced on Aug. 10.
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