Knight-Swift merger approved by Swift shareholders, deal expected to be made official

The merger of two Phoenix, Az.-based truckload giants, Swift Transportation and Knight Transportation, was approved late yesterday by Swift stockholders, Swift officials announced yesterday.  Swift said it expects to the merger to close today.

As previously reported by LM, the companies entered into a merger agreement on April 9, pursuant to which they agreed to a combination transaction after which their respective businesses will be operated under a separate company, which will be called Knight-Swift Transportation Holdings.

The merger creates a new entity with $6 billion enterprise value. Swift already had been the largest TL carrier with close to $4 billion in revenue. On a combined basis last year, Knight and Swift generated approximately $5.1 billion in total revenue, $416 million in adjusted operating income and $806 million in adjusted earnings before interest, taxes and debt for 2016. The new company will have about $1.1 billion on debt.

Knight CEO and namesake Kevin Knight will be taking over day-to-day reins of the new Knight-Swift Transportation Holdings Inc. from 72-year-old Swift founder and trucking legend Jerry Moyes.

“Effectively, this deal represents the pupil acquiring the teacher's company and will give the Knight team control of the new entity,” Stifel Inc. trucking analyst John Larkin wrote in an April note to investors.

For his part, Moyes said he was delighted to find a quality partner like Knight, his crosstown rival for decades.

“I cannot think of a better combination,” Moyes said in a statement. “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. 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.”

Swift stockholders would get 0.72 shares of the new entity. Swift would own 54% of the new entity. Knight the remaining 46%. Swift shareholders effectively receive about a 10% premium for their shares.

Moyes will serve on the board of the combined entity and will be allowed to name another Board member. Up to 10 board members will come from the current Knight board, giving that company effective control over the new Knight-Swift entity.

Knight-Swift combination comes in the wake of the completion of the Schneider initial public offering (IPO) last spring. Schneider is the second-largest TL carrier with about $3 billion in revenue.

Knight-Swift “may be designed to allow the combined company an opportunity to better compete with its newly, financially invigorated, big orange perpetual motion machine from Green Bay,” analyst Larkin concluded. It will trade under the ticker “KNX.”

This transaction combines under common ownership two long-standing industry leaders creating North America's premier truckload transportation company with $5 billion in annual revenue and a “Top 5” truckload presence in dry van, refrigerated, dedicated, cross-border Mexico and Canada, and a significant presence in brokerage and intermodal.

Knight-Swift said the holding company structure will enable the Knight and Swift businesses to operate under common ownership and share best practices, while maintaining distinct brands and operations. The company will remain headquartered in Phoenix with approximately 23,000 tractors, 77,000 trailers, and 28,000 employees.

Knight is expected to be the accounting acquirer, and the transaction is expected to be accretive to adjusted earnings per share with expected pre-tax synergies of approximately $15 million in the second half of 2017, $100 million in 2018, and $150 million in 2019, the company said.

“In Knight’s 26-year history, we have built a truckload company with industry leading margins and investment returns,” Knight Executive Chairman Kevin Knight said in a statement.

He said when the companies began discussions, he had four goals in mind: create a company with the best strategic position in the 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.

“I am confident we have achieved those goals,” Knight concluded.

Swift Chairman Richard Dozer called it “a terrific opportunity for our stockholders, who stand to benefit from the significant upside potential of this transaction. Indeed, by coming together under common ownership, the companies will be able to capitalize on economies of scale to achieve substantial synergies.

“This is an exciting chapter in the Swift story and everyone who is a part of it should be both proud of what we bring to the table and excited about what lies ahead,” Dozer added. “I am confident in this new team, in the new structure and in the future of Swift in the industry.”

Knight CEO Dave Jackson said under the new ownership structure, it will be able to operate our distinct brands independently with experienced leadership in place.

“We look forward to learning from each other’s best practices as we seek to be the most efficient company in the industry,” Jackson said. “We are dedicated to a seamless transition and ensuring continuity for our customers and professional driving associates.”

Swift CEO Richard Stocking will be leaving the company after the completion of the merger. He said, “I am proud of all Swift has accomplished and that it will be a significant part of this new venture, which brings together the most robust, respected and reliable truckload providers in North America. I am especially proud of the fact that both companies will remain devoted to delivering a better life to employees, customers, and communities. Throughout this transition, I encourage everyone to work together to continue building the Swift brand.”

Knight-Swift expects to employ a cross-functional team to generate significant synergies across both brands.  On a combined basis, free cash flow was approximately $495 million for 2016. The companies expect net capital expenditures to be approximately $345 million to $410 million for the full year 2017.

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, Knight will serve as president of the Swift operating entities. Moyes will serve as a non-employee senior advisor to Kevin and Gary Knight.