Knight Transportation recently proposed an acquisition of USA Truck for $9 per share or $95 million only to be rebuffed by the carrier’s management.
Knight is now taking its offer public to communicate directly with USA Truck’s shareholders.
The total value of the proposed acquisition, which includes USA Truck’s outstanding debt, is $242 million. Knight currently owns 8 percent of USA Truck.
On Sept. 6, 2013, USA Truck’s board rejected Knight’s Aug. 28, 2013 proposal as "inadequate and indicated that ‘the company is not for sale,’” according to a Sept. 26 filing with the Securities and Exchange Commission
. “In light of USA Truck’s negative response, Knight Transportation communicated to USA Truck that Knight Transportation saw no merit in engaging in discussions directly with USA Truck management.”
The SEC filing also lays out a bit of history between the two companies. According to the filing, Knight previously approached USA Truck about a merger “at various times” only to have its overtures rejected.
Believing in the merit of its proposal, Knight has taken its offer public to drum up support for the acquisition.
“Notwithstanding USA Truck’s rejection of its proposal, Knight Transportation believes that USA Truck stockholders will find its $9.00 per share proposal to be very attractive,” according to the filing. “Accordingly, Knight Transportation decided to publicly disclose its proposal by issuing the press release.”
The proposal first came to light in an Aug. 28 letter from Kevin Knight, chairman and chief executive officer of Knight Transportation, who wrote that the proposal would provide “shareholders with immediate liquidity for their shares at an attractive price, without being subject to the significant execution risk associated with your current turnaround plan.”
In the letter, Knight noted the company has conducted thorough research into USA Truck’s value and its offer equates to a 58-percent premium on USA Truck’s shares as of Aug. 27. He said the price is a good value for a company that has an operating ratio greater than 100 percent, limited share volume and a falling book value. Knight did, however, leave the door open for a better offer down the road.
“Although we believe our proposal would provide full and fair value to your shareholders,” he wrote, “we would be prepared to modestly increase our proposed purchase price if we were allowed to conduct due diligence and the company were to demonstrate to us value that we have not already identified.”
Knight’s interest in USA Truck stems from the young tractor fleet and similar haul lengths of the two companies. Knight also likes the culture of USA Truck, which is similar to its own. Kevin Knight wrote an acquisition will allow him to improve USA Truck’s operational efficiencies and finance the firm’s capital needs at a cheaper level.
In the letter, Knight set the Sept. 6 deadline for a formal response from USA Truck officials.
As of Thursday morning, shares of Knight Transportation were up 7.62 percent to $17.22, while USA Truck shares were trading at $9.04, up 39.94 percent.