Knight Transportation Inc. and Swift Transportation Co., two of the nation’s largest trucking companies, said on Monday they would merge their businesses.
The massive transaction – a stock swap – will create a trucking behemoth with $5 billion in annual revenue and a business positioned no less than fifth nationally in the dry van, refrigerated, dedicated, cross-border shipping to Mexico and Canada markets. It will operate 23,000 tractors and 77,000 trailers and have 28,000 employees.
Both companies are based in Phoenix – where the combined business will be headquartered – and their founders, Kevin Knight of Knight and Jerry Moyes of Swift, are close friends.
“Effectively, this deal represents the pupil acquiring the teacher’s company and will give the Knight team control of the new entity,” John Larkin, a logistics analyst at Stifel Financial Corp., said in a report to investors.
Swift has struggled since Moyes, the son of a truck driver who Larkin described as the carrier’s “spiritual leader,” retired late last year and handed the reins to Richard Stocking, Swift’s long-time chief operating officer.
Jerry Moyes. (Photo: Reuters)
Knight, who will become executive chairman of the combined business “is known as one of if not the best operator in the truckload industry,” Larkin said. “We believe he will add some operating discipline and strategic direction to the Swift organization.”
The deal will allow both companies to better compete with industry giant Schneider National Inc. of Green Bay, Wis., which raised $550 million in its initial public offering last week, Larkin said.
The deal comes just as the trucking industry is starting to rebound from a slump.
“The economic outlook has solidified for 2017, and freight growth is expected to accelerate versus what we saw in 2015 and 2016,” Jonathan Starks, chief operating officer at FTR Transportation Intelligence said in an industry report Monday.
He expects pricing for the types of large shipping contracts that make up much of the Knigt and Swift business will start to inch up near year-end.
Although the companies characterized the deal as a merger, Knight is legally acquiring Swift. The combined company will be named Knight-Swift Transportation Holdings Inc. and will trade under the ticker “KNX.” But when the transaction closes in the third quarter of this year, Swift stockholders will own approximately 54 percent of the business and Knight stockholders will own about 46 percent.
Based on the $30.65 closing price of Knight shares on Friday, the last trading day prior to the announcement, the deal values Swift at $22.07. In midday trading after the merger was announced Monday, Swift shares soared $4.76, or almost 24 percent, to $24.78. Knight shares jumped $4.30, or 14 percent, to $34.95.
Based on the closing share prices of the carriers on Friday, and their outstanding debt, the merged business will be valued at about $6 billion, the companies said in a joint statement.
They will operate as separate brands under one holding company. But management will change significantly with much of the senior leadership team at Swift yielding control to Knight executives. Stocking and Ginnie Henkels, chief financial officer of Swift, will resign once the merger is completed.
Dave Jackson, Knight’s chief executive, and Adam Miller, the carrier’s chief financial officer, will hold those positions in the new business. Moyes will serve as a non-employee senior advisor.
“Under this ownership structure, we will be able to operate our distinct brands independently with experienced leadership in place,” Jackson said. “We look forward to learning from each other’s best practices as we seek to be the most efficient company in the industry.”
Cost savings will allow the business to generate greater profits than the carriers would have as separate businesses, the companies said.
They estimated cost synergies of approximately $15 million in the second half of 2017, $100 million in 2018 and $150 million in 2019.
The savings “are expected to be realized from sharing best practices from each company, improving yield, identifying purchasing economies, benefitting from broader geographic scale and capitalizing on an enhanced cash flow profile to reduce interest costs,” the companies said in their statement.
On a combined basis, Knight and Swift generated approximately $5.1 billion in total annual revenue and $416 million in adjusted operating income last year.
Moyes, the controlling shareholder of Swift, will remain the dominant shareholder in the merged company, owning about 24 percent of the Knight-Swift stock.
“I cannot think of a better combination,” Moyes said. “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.”
Source: Trucks