ClearBridge Investments Sends Letter Urging Board of Directors of Forward Air Corporation to Reconsider Announced Intention to Acquire Omni Logistics
- None.
- The acquisition of Omni Logistics has raised concerns over the size, complexity, and financial leverage of the deal. The integration of companies with disparate cultures and systems poses substantial operating execution risk. The deal synergies do not justify the valuation, size, and complexity of the transaction. The absence of shareholder approval and the resulting collapse of Forward stock are also concerning.
The full text of the letter follows.
August 18, 2023
Mr. Thomas Schmitt, Chairman and Chief Executive Officer
Mr. R. Craig Carlock, Lead Independent Director
Forward Air Corporation
1915 Snapps Ferry Road
Building N
Dear Thomas and Craig:
ClearBridge Investments, LLC, a wholly-owned subsidiary of Franklin Resources, has been a significant shareholder in Forward Air since 2018. Our investment team has held numerous conversations with management over the past five years.
We were surprised and alarmed by the recent announcement to acquire Omni Logistics for the stated enterprise value of
The Omni acquisition elevates gross financial leverage to approximately four times trailing adjusted EBITDA, an uncomfortable level in our view particularly in a higher interest rate environment. We appreciate the “capital light” operating models of both Forward and Omni, yet rapid financial deleveraging, dependent on revenue and cost synergies and potential asset redeployment, seems heroic in the context of
As part of the corporate Grow Forward strategy, management articulated “tuck-in” acquisitions as an astute use of capital. In a departure from that stated strategy, the Omni transaction is transformative, doubling the size of the company. Omni has grown significantly through acquisition as well. The complexities of fully integrating and optimizing companies with disparate cultures and systems appears to be a large task fraught with substantial operating execution risk.
We are unclear regarding the industrial logic of combining a specialized LTL trucker with a freight forwarder. Even assuming limited client loss due to merger uncertainties, we are uncertain why the broadened service offerings pro forma will lead to significant incremental traffic into Forward Air’s network. The deal synergies do not justify the valuation, size, and complexity of this transaction.
As already expressed, the absence of shareholder approval with close to
We urge the Board to reconsider this transaction. Acquisition of Forward stock, at lower multiples than Omni Logistics, seems a far better use of capital.
Sincerely,
Aram Green |
Jeffrey Russell |
Hannah Whang |
Managing Director |
Managing Director |
Director |
About ClearBridge Investments
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TN23-50
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Lisa Tibbitts
+1 (917) 674-8060
lisa.tibbitts@franklintempleton.com
Source: ClearBridge Investments, LLC