Activist investor Ancora Holdings Group joined the fray Tuesday, voicing opposition to Forward Air’s planned merger with Omni Logistics.
The firm said the deal is too expensive, adds a significant amount of leverage and was “intentionally structured to avoid a pre-closing shareholder vote,” in an appearance at 13D Monitor Active-Passive Summit in New York City.
An announced deal price of $3.2 billion includes only $150 million in cash, requiring Forward (NASDAQ: FWRD) to fund the remainder of the transaction with debt and equity. The terms call for Omni’s stakeholders to receive a 37.7% equity stake in aggregate with Forward assuming the company’s $1.4 billion in net debt.
Ancora said that implies Forward is paying 18 times last 12-months adjusted earnings before interest taxes, depreciation and amortization for Omni (30 times on an unadjusted basis) and that combined net leverage will exceed 4 times. The company, however, has outlined $125 million in cost and revenue synergies that reduces those multiples significantly.
The transaction is currently held up in a Tennessee court awaiting a decision on a temporary injunction, which could clear the path to a hearing to determine if Forward’s shareholders will get to vote on the deal.
The court first issued a temporary restraining order at the end of September.
The three plaintiffs in the motion are former Forward employees, including its former chief financial officer, Rodney Bell. Among other things, the complaint said Tennessee law requires a shareholder vote as the deal structure will result in the transfer all of Forward’s assets and exceed more than 20% dilution to existing shareholders.
Forward said the transaction was structured appropriately and it doesn’t require a vote. In court filings, it said the assets will remain under its control throughout the process and that a less-than-20% equity stake will be allocated at closing. After closing, shareholders will be given the opportunity to vote on converting nonvoting preferred stock into common voting shares.
Ancora said the structure will “effectively coerce shareholders to vote in favor of conversion.”
If the shares aren’t converted, a steep dividend will be paid to the holders. If converted, Omni’s stakeholders will control a 38% voting block. Ancora referred to the setup as “self-entrenchment” as that voting block is also required to vote in favor of board-nominated directors in future elections. Ancora also took issue with Omni stakeholders getting four seats on Forward’s board.
The firm said it would push for a special meeting of shareholders to replace the board and the company’s chairman, president and CEO, Tom Schmitt, if the court rules a shareholder vote is required. It also said it will “review all options available for holding the Board and management accountable.”
Even if the court rules in favor of the company, Ancora said the board could still be unseated at a special meeting before a conversion vote on the preferred shares is held.
Shares of Forward gapped more than 40% lower following the deal’s announcement. The stock closed Tuesday up 4% on the day but still 30% off a pre-deal closing price of $110.
Ancora said the stock could trade above $100 within the next six months if shareholders are able to reject the deal and the board and CEO are ousted. It laid out a base case of $140 to $145 over the “immediate-term,” which includes margin initiatives, selling noncore assets and repurchasing shares.
The activist investor has had success changing Forward’s direction in the past. The group leveraged a 5% equity stake to land two board seats in 2021.
Concerned with the company’s lagging valuation, which it claimed was tied to a continued diversification into lower-margin businesses, Ancora started accumulating shares as well as support from other shareholders.
However, Ancora’s current influence is unknown as it unwound most of that position in 2022 and its former founder, Scott Niswonger, who it designated to one of its board seats, resigned from the board the day the Omni deal was announced.
“We believe the merits of the plaintiffs’ lawsuit are strong and believe there is a high degree of probability that the Court will rule in their favor requiring Forward Air to hold a pre-closing shareholder vote on the Omni acquisition,” Ancora’s presentation stated.
Other investors have also expressed displeasure with the deal.
ClearBridge Investments, a 4% holder of Forward, wrote an open letter asking the company to cancel the transaction, and recent court documents showed institutional holder P. Schoenfeld Asset Management said the company went to “great length to deprive Forward Air common stockholders of their legally mandated voting rights,” among other complaints.
“Forward is aware of Ancora’s presentation today,” a spokesperson with the company told FreightWaves. “We are in regular communication with all of our investors and actively consider their views on the company’s strategy and progress. Our Board of Directors and management team are committed to driving long-term value for our shareholders, employees, and customers and are focused on taking actions that enable us to deliver on this objective.”
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