Swift Transportation Co. and Knight Transportation Inc. will merge via a stock swap to form a new company, Knight-Swift Transportation Holdings Inc. The companies said the deal will bring together two of the largest players in trucking for a combined enterprise value of $6 billion.
The Phoenix-based companies announced on April 10 that their respective boards of directors have unanimously approved the merger of Knight and Swift in an all-stock transaction that they said will create the industry's largest full truckload company.
The Knight-Swift shares are expected to trade on the New York Stock Exchange under the symbol “KNX." The transaction, subject to customary stockholder and antitrust approval, is expected to close in this year's third quarter.
“This transaction combines under common ownership two long-standing industry leaders creating North America's premier truckload transportation company with $5 billion in annual revenue and a ‘Top 5’ truckload presence in dry van, refrigerated, dedicated, cross-border Mexico and Canada, and a significant presence in brokerage and intermodal,” the companies said in a statement.
The new holding company will remain headquartered in Phoenix and will operate with some 23,000 tractors, 77,000 trailers, and 28,000 employees. The companies noted that, post-merger, the distinct Swift and Knight brands and operations will be maintained.
Under the terms of the agreement, each Swift share will convert into 0.72 shares of Knight-Swift by means of a reverse stock split. Each share of Knight will be exchanged for one Knight-Swift share.
The companies said that based on the $30.65 closing price of Knight shares on April 7, the last trading day before the announcement, the implied value per share of Swift is $22.07. Upon the deal’s closing, Swift stockholders will own approximately 54% and Knight stockholders will own approximately 46% of the combined company.
Based on Knight’s closing share price on April 7; the number of combined company shares expected to be outstanding after closing; and the combined net debt of Swift and Knight as of December 31, 2016, the combined company would have an implied enterprise value of approximately $6 billion.
Knight is expected to be the accounting acquirer, and the transaction is expected to be accretive to adjusted earnings per share with expected pre-tax synergies of approximately $15 million in the second half of 2017, $100 million in 2018, and $150 million in 2019.
In Pursuit of Economies of Scale
The Swift-Knight deal will outweigh the purchase of Con-way by XPO Logistics as the largest acquisition in trucking.
“In Knight’s 26-year history, we have built a truckload company with industry leading margins and investment returns,” said Knight Executive Chairman Kevin Knight. “When the two companies began discussions, we had four goals in mind: create a company with the best strategic position in our industry; identify significant realizable synergies that would create value for both sets of stockholders; create a business that over the long-term will operate at Knight's historical margins and financial returns; and agree on a leadership and corporate governance framework that will benefit all stakeholders. I am confident we have achieved those goals.”
Swift Chairman Richard Dozer said the combined companies will be able “to capitalize on economies of scale to achieve substantial synergies. This is an exciting chapter in the Swift story and everyone who is a part of it should be both proud of what we bring to the table and excited about what lies ahead. I am confident in this new team, in the new structure and in the future of Swift in the industry.”
Jerry Moyes, Swift founder and controlling stockholder, said he “cannot think of a better combination. 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.
"I am confident that we have the right approach to maximizing the contribution of both teams, and I look forward to helping the Knight-Swift leadership team in any way I can to continue the legacy of both great companies,” Moyes added.
“[Swift founder] Jerry Moyes will serve on the board of the combined entity and will be allowed to name another board member,” according to an April 10 analyst update released by Stifel. “Up to 10 board members will come from the current Knight Board. Effectively, this deal represents the pupil acquiring the teacher's company [Knight founder Kevin Knight launched his career at Swift] and will give the Knight team control of the new entity.”
Stifel also observed that “Swift appears to have struggled with the retirement of its founder and spiritual leader, Jerry Moyes. Former Chief Operating Officer Kevin Knight will be in a strong position to provide strategic leadership of the combined entity. Mr. Knight is known as one of if not the best operator in the truckload industry and we believe [he] will add some operating discipline and strategic direction to the Swift organization.”
Given that the merger is being announced right after completion of the Schneider IPO last week, Stifel added that it “may be designed to allow the combined company an opportunity to better compete with its newly financially invigorated, big orange perpetual motion machine from Green Bay, Wisconsin.”