Panther deal will help ABF, but not a ‘cure-all’

The Arkansas Best acquisition of Panther Expedited Services will help diversify the company and provide a revenue boost, but it won’t help the Fort Smith-based transportation holding company improve its cost structure relative to its competitors.

The $180 million deal closed Friday (June 15), with a five-year note of $100 million and $80 million in cash used to acquire Seville, Ohio-based Panther.

As a logistics company, Panther does not own trucks or other capital-intensive equipment. Rather, they provide transportation and shipping solutions to more than 11,000 customers worldwide, according to the company’s website. Panther works with more than 5,000 ground and air carriers to provide shipping logistics.

Jack Waldo, a transportation industry analyst with Little Rock-based Stephens Inc., said the deal will leave Arkansas Best with $92 million in cash and $167 million in total liquidity. Arkansas Best will have enough of a financial cushion and a new diversified to struggle through the tough shipping economy, but the deal is “not a cure-all for ABFS' ailments,” Waldo said, adding later that the company’s “traditional LTL business is still faced with an outdated cost structure that is materially more burdensome than that of its competition.”

ABF Freight System — the largest subsidiary of Arkansas Best and one of the largest less-than-truckload carriers in the U.S. — was responsible for $1.73 billion of the $1.907 billion in revenue Arkansas Best posted during 2011.

Arkansas Best posted 2011 net of $6.159 million, a huge swing from the $32.693 million loss during 2010. The 2011 financials marked the end of two consecutive years of income losses.

“Specifically, it does nothing to eliminate the employee-related cost disparity between ABFS and its LTL competitors. Fortunately for ABFS, there are near-term events that could even the playing field in terms of cost structure,” Waldo explained.

The two events are a favorable resolution of a $750 million lawsuit Arkansas Best is pursuing against YRC Worldwide and the Teamsters. Arkansas Best seeks in the legal action first filed Nov. 1, 2010, damages from alleged violations of a National Master Freight Agreement (NMFA) by the International Brotherhood of Teamsters and YRC. The case remains in the U.S. District Court, Eastern District of Arkansas.

The second event is the completion of a new labor agreement with the Teamsters, according to Waldo.

But Waldo places a lot of value on the Panther deal. His investor note included this commentary: “Of all the potential acquisitions we think ABFS could have made, we view Panther as one of the most attractive. From an operational standpoint, we see the opportunity for meaningful synergies with minimal risk and expect the transaction to be highly accretive from the beginning. From a strategic perspective, we view the acquisition as a relatively low-risk way to enter the logistics market on a grander scale and create the foundation for future growth away from ABFS' core LTL business.”

Waldo said more than 60% of ABF Freight’s business was tied to manufacturing. Panther’s business is spread more evenly, Waldo said, with about 20% in “government/life sciences/high value product,” 20% manufacturing, and 22% automotive.

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“Specifically, (Panther) has a track record of relatively consistent margins, free cash flow and capital returns, which is in stark contrast to ABFS' wide swings in profitability,” Waldo explained.

The investment community also is pleased with the deal. The Arkansas Best share  (NASDAQ: ABFS) price has slowly climbed from a $10.38 low to trading above $12.50 in intraday trading on Monday. During the past 52 weeks, the share price has ranged from the $10.38 low to a $27.44 high.

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