Monday, July 22, 2024

Forward Air shareholders OK conversion of Omni’s shares to voting stock

Forward Air’s shareholders have approved the conversion of nonvoting preferred shares that were granted to Omni Logistics’ stakeholders as part of a merger between the two companies. That shareholder group, which mainly consists of Omni’s private equity backers, will now hold roughly 14 million shares, or 35% of the voting common equity.

A Tuesday filing with the Securities and Exchange Commission also showed that Forward’s (NASDAQ: FWRD) shareholders elected the 12-person slate of director nominees recommended by the board. That group includes three directors designated by Omni’s financial backers: Ridgemont Equity Partners and EVE Partners.

The company’s annual shareholder meeting was held on Monday.

A May 15 class action complaint against Forward claims its management team and board circumvented shareholder input by not calling for their vote ahead of the merger’s closing. Forward has said the transaction’s structure, which included less than a 20% shift in voting control at closing, didn’t require a vote according to Tennessee law where it is domiciled.

Shareholders represented in that complaint also say they had little choice when voting to approve the conversion of the preferred shares, as failure to do so would have required $94 million in dividend payments in year one and $110 million in dividends in year two. The group pointed out that the company had just $18.3 million in cash on hand at the time of the deal’s announcement in August.

The Omni shareholder group is required to vote its shares in favor of board-nominated directors, which the complaint said further insulates the board from backlash.

The transaction was also challenged by another group of shareholders last year, prompting Forward to attempt to exit the deal as pressure mounted. Litigation between the two companies ultimately led to a settlement, reducing total consideration to $2.1 billion from the initial purchase price of $3.2 billion. However, the bulk of the reduction was due to a sell-off in Forward’s stock.

Shares of FWRD closed at $110 in the last trading session (Aug. 9) ahead of the deal’s announcement. Shares have fallen as low as $11.21 in recent weeks before a recent rally. Part of the rally is tied to a Wall Street Journal report that activist investor Irenic Capital Management now holds a 5% stake in the company and is floating a number of options, including the divestiture of Omni or the sale of Forward to private equity for a “substantial premium” to the current share price.

Forward has also reconfigured the C-suite in recent weeks, which may be contributing to the stock’s melt-up. A new CEO was installed in April, and the company’s chief financial officer is being replaced by a restructuring and strategic planning expert who twice served in the same role at now-defunct Yellow Corp. (OTC: YELLQ), formerly YRC Worldwide.

The new management team is tasked with navigating the shareholder class action, potential activist activity and a debt-heavy balance sheet — 5.5 times net debt-to-trailing 12 months’ adjusted earnings before interest taxes, depreciation and amortization. Forward took on roughly $1.4 billion in net debt from Omni as part of the deal and closed the first quarter with $1.77 billion in total debt.

On the first-quarter call, management wouldn’t say if the company would be cash flow-positive in the second quarter, though it did say Forward was unlikely to breach debt leverage covenants in the period.

Shares of FWRD were up 4.4% at 11:01 a.m. EDT on Wednesday compared to the S&P 500, which was 0.5% higher.

More FreightWaves articles by Todd Maiden

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Saia’s stock pops on May’s volume acceleration

Yellow’s shareholders get desired ruling in Delaware bankruptcy court

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