ClearBridge Investments Sends Letter Urging Board of Directors of Forward Air Corporation to Reconsider Announced Intention to Acquire Omni Logistics
ClearBridge Investments, LLC has sent a letter to the Chairman and Chief Executive Officer and the Lead Independent Director of Forward Air Corporation (NASDAQ: FWRD). The purpose of the letter is to urge Forward Air's Board of Directors to reconsider its recently announced intention to acquire Omni Logistics.
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
Greeneville, TN 37745
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 $3.2 billion. Simply put, this acquisition appears too big and too complicated. We urge the Board and management to outright cancel the transaction.
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 U.S. macroeconomic uncertainties.
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 40% of pro forma equity in the hands of Omni's owners was poorly conceived. The resultant collapse of the Forward stock (with multiple downgrades from industry analysts expressing puzzlement over the resulting complexity) is in part reaction to this feature of the transaction.
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
With $165.4 billion in assets under management as of June 30, 2023, ClearBridge Investments is a leading global equity manager committed to delivering long-term results through authentic active management, offering investment solutions that emphasize differentiated, bottom-up stock selection to move clients forward. The firm integrates ESG considerations into its fundamental, bottom-up research and stock selection process across all strategies. Owned by Franklin Templeton, ClearBridge operates with investment independence from headquarters in New York and offices in Baltimore, Fort Lauderdale, London, San Mateo, and Sydney. To learn more, visit https://www.clearbridge.com/.
TN23-50
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