Officials with Knight Transportation say they aren’t impressed with the recent quarterly financials from Van Buren-based USA Truck and maintain that the $9 per share offer “fully and fairly values” USA Truck.
Phoenix-based Knight made public its bid for USA Truck on Sept. 26. The $9 per share bid at the time was a 39% premium from USA Truck’s share price on Sept. 25. The share purchase and assumption of liabilities creates a $242 million deal. At risk in a deal with Knight would be some or all of the 500 jobs at USA Truck’s corporate headquarters in Van Buren.
The USA Truck management and Board of Directors responded by saying the Knight offer “substantially undervalues” the company and does not reflect the value of potential gains from ongoing turnaround initiatives.
USA Truck has reported four consecutive years of losses. The Van Buren trucking company on Oct. 17 reported a third-quarter loss of $602,000, a big improvement over the $6.072 million loss posted in the third quarter of 2012. The report was also better than what the market expected. For the first three quarters of the year, the income loss for USA Truck is $3.975 million, better than the almost $19.5 million loss during the same period of 2012.
USA Truck CEO John Simone, who was hired in February to rescue the company, has said the company is making progress on returning to profitability. He said in the third quarter report that investors would see “significantly improved quarter-over-quarter results in the fourth quarter irrespective of industry conditions and seasonality."
But Knight is dismissive of the quarterly results and Simone’s promise of a turnaround.
“Knight continues to believe that its $9 per share, all-cash proposal fully and fairly values USA Truck, especially in light of USA Truck’s consistent underperformance, including nine consecutive quarters of losses totaling approximately $30 million,” Knight officials noted in the statement issued Monday (Nov. 4). “Knight remains confident that its premium proposal is significantly more attractive than USA Truck’s standalone prospects, and Knight remains willing to modestly increase the proposed purchase price if USA Truck can demonstrate value that has not already been identified.”
The statement from Knight included the following notes.
• Knight believes USA Truck’s recent financial results demonstrate only limited improvement and that its recent share price surge is unsupported by either industry or company specific fundamentals.
• On a sequential basis, USA Truck’s truckload segment Operating Ratio remains above 100% and improved only modestly from 103.8% in the second quarter of 2013 to 103.6% in the third quarter of 2013.
• Knight continues to believe that USA Truck’s turnaround plan remains fraught with significant execution risk.
In its Nov. 4 presentation, Knight officials allege that USA Truck has made accounting changes that “enhanced earnings and mitigated further erosion to its book value.”
The presentation also questions the validity of USA Truck’s share price increase in recent weeks. The USA Truck share (NASDAQ: USAK) price jumped following the Knight offer, and has been on the rise since. The share price on Monday (Nov. 4) hit a new 52-week intraday price of $14.25, but had settled to $13.60 in late afternoon trading. The shares closed Friday at $13.64.
“The recent surge in USA Truck’s share price is not supported by a fundamental improvement in the company’s operating or financial performance, nor in the broader market outlook,” Knight noted in the presentation.
USA Truck officials fired back by filing on Oct. 10 a breach of contract lawsuit against Knight. The lawsuit, filed in Crawford County Circuit Court, accuses Knight officials of “improperly using USA Truck's confidential information to begin a creeping hostile acquisition of USA Truck at a price that the Board has unanimously concluded does not reflect the Company's full intrinsic value.”
Company officials also say the revenue numbers show that business is returning. Total revenue for USA Truck during the third quarter was $141.822 million, up 13.99% compared to the third quarter of 2012. Revenue during the first three quarters of the year reached $413.587 million, up almost 10% compared to the same period in 2012.