U.S. Xpress, headed toward being acquired by Knight Swift (NYSE: KNX), has settled litigation that goes back to its initial public offering and what followed in the months after it became a publicly traded company.
The $13 million settlement will need one more court hearing, scheduled for July 10, to be fully implemented. That hearing would also establish attorneys’ fees for the case. At the hearing in the U.S. District Court for the Eastern District of Tennessee, Judge Travis McDonough will determine whether the settlement is “fair, adequate and reasonable.” But the court has granted a motion for preliminary approval.
The lead plaintiff is Lewis Stein, an investor in U.S. Xpress (NYSE: USX) stock at or near the time of the IPO. But the number of potential plaintiffs who would benefit from the settlement is not known. In the original filing, attorneys for Stein and the class describe the number of members as “so numerous” that bringing them all together is “impracticable.”
The initial suit was filed April 2, 2019.
As with all class-action settlements, the agreement spells out how U.S. Xpress shareholders can claim part of the settlement. The class is defined as shareholders who bought shares “or otherwise acquired” U.S. Xpress stocks “pursuant or traceable” to the June 14, 2018, IPO.
At issue is the state of the trucking market as spelled out by U.S. Xpress in its registration statement with the Securities and Exchange Commission before the IPO and the reality of that market by the end of the year.
Trucking did suffer a significant decline just as U.S. Xpress was becoming public on June 14. The Outbound Tender Reject Index in FreightWaves SONAR, which measures cargo rejections and is a barometer of capacity, peaked at around 25.65% in late June 2018, representing a tight market. The OTRI fell to about 14.1% by the end of the year. On June 30, 2019, about a year after the IPO, it was 5.95%, signifying hefty levels of truckload capacity available for shippers.
The chart reflects the Outbound Tender Rejection Index for about two months before the U.S. Xpress IPO in June 2018 and one year afterward.
That decline in the fortunes of trucking and in contrast to what U.S. Xpress benefited from at the time of the IPO was the basis of the suit. The plaintiffs cited the relatively strong outlook in the SEC registration statement and contrasted that with CFO Eric Peterson’s statements on the U.S. Xpress third-quarter 2018 earnings call, where he said that “rates, driver wages and independent contractor costs are all higher than expectations.” (However, he added that rates were higher than driver costs and had been a “tailwind.”)
But he also said tractor utilization was about 100 basis points lower than expected in the over-the-road division and about 450 basis points less in dedicated.
The lawsuit cites several of these differences between the registration statement and the conditions at the close of 2018. The suit said given the reality of the market that U.S. Xpress operated in when it went public, the registration statement included “untrue statements of material facts or omitted to state the facts necessary to make the statements made therein not misleading, thus violating the rules and regulations governing its preparation.”
Disclosure: FreightWaves founder and CEO Craig Fuller retains ownership of U.S. Xpress shares through his family trust.
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