TL carriers Knight Transportation and Swift Transportation Co. are planning to merge via an all-stock transaction, with the combined company to be named Knight-Swift Transportation Holdings Inc. and its joint stock trading under the ticker “KNX.”
The motor carriers said in a joint statement that the holding company structure will enable the Knight and Swift to operate under common ownership and share best practices, while maintaining distinct brands and operations.
The combined company will be headquartered in Phoenix, AZ, and operate a fleet of some 23,000 tractors and 77,000 trailers in total, with a total workforce of 28,000 employees, both carriers noted.
The transaction is expected to be accretive to adjusted earnings per share and to generate pre-tax revenue and cost synergies of approximately $15 million in the second half of 2017, $100 million in 2018 and $150 million in 2019, the companies said.
Synergies are expected to be realized from sharing best practices from each company, improving yield, identifying purchasing economies, benefiting from broader geographic scale and capitalizing on an enhanced cash flow profile to reduce interest costs, they added.
Under the terms of the deal, each Swift share will convert into 0.72 shares of Knight-Swift by means of a reverse stock split, while each share of Knight will be exchanged for one Knight-Swift share.
The companies added that upon closing of the transaction, Swift’s shareholders will own about 54% of the combined company, while Knight’s stockholders will own some 46% of it.
Overall, Knight and Swift estimated the combined value of their two companies should be in the neighborhood of $6 billion.
Kevin Knight, Knight’s executive chairman, noted in a statement that when his company and Swift began merger discussions, they 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.
“Indeed, by coming together under common ownership, the companies will be able to capitalize on economies of scale to achieve substantial synergies,” added Swift Chairman Richard Dozer in his own statement. “This is a terrific opportunity for our stockholders, who stand to benefit from the significant upside potential of this transaction.”
Jerry Moyes, the founder and controlling stockholder of Swift – who only recently retired from active day-to-day control of the company at the end of last year – said he “cannot think of a better combination” in terms of merging Knight and Swift together.
“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,” he said in a statement.
“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.
In a research note, John Larkin, managing director and head of transportation capital markets research at Stifel Financial Corp., said this deal “represents the pupil acquiring the teacher's company” as Kevin Knight formerly served as COO for Swift before striking out on his own.
Larkin added that Swift also appeared to be struggling with the retirement of its founder and spiritual leader, Jerry Moyes, which is one reason why Kevin Knight is expected to “be in a strong position to provide strategic leadership of the combined entity.”
Larkin pointed out that Kevin Knight is “known as one of if not the best operator in the truckload industry” and thinks he’ll add some “operating discipline and strategic direction” to the Swift organization.
Another reason for the combination between to the two carriers is the just-completed Schneider IPO, Larkin said, with the merger between Knight and Swift “designed to allow the combined company an opportunity to better compete with [the] newly, financially invigorated, big orange perpetual motion machine from Green Bay, WI.”
There will be changes to executive suite and board of directors structure as a result of the merger between Knight and Swift.
The executive team of Knight-Swift will be led by Kevin Knight as executive chairman, Dave Jackson as CEO and Adam Miller as CFO. Following the close of the transaction, Kevin Knight will serve as president of the Swift operating entities, while Moyes will serve as a non-employee senior advisor to Kevin and Gary Knight.
Richard Stocking, currently CEO of Swift and Ginnie Henkels, CFO of Swift, are leaving their respective positions to pursue other opportunities following the closing of the transaction. In the interim, however, both companies said Stocking and Henkels will “continue to lead Swift to ensure a smooth transition.”
The board of directors of Knight-Swift will be comprised of all Knight directors and four current Swift directors. The Jerry Moyes family will initially be entitled to designate two directors reasonably acceptable to the board, one of whom must be independent, with the initial designees being Glenn Brown and Jerry Moyes.
The remaining two directors were chosen by the Swift board and will be Richard Dozer and David Vander Ploeg. Kevin Knight will serve as executive chairman of the board and Gary Knight will serve as vice chairman, the companies said.
