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In 2023, Forward Air’s (NASDAQ: FWRD) stock traded at a high of $121 per share. Then the company announced an agreement to acquire Omni Logistics.
The press release had then-Chairman, President and CEO Tom Schmitt quoted as saying, “The combination of Omni with Forward creates a company positioned to achieve the full potential of our LTL business, provide a broad offering of complementary services to our customers, and deliver meaningful value for our shareholders.”
Furthermore, even the lead independent director of the board, Craig Carlock, was quoted as saying, “By uniting these two complementary businesses, the combined company will be well-positioned to meet the unique and evolving needs of a diverse and growing customer base while delivering enhanced value for our shareholders. … The Forward Board is confident in the value potential inherent in this combination and excited for the benefits it will bring to our key stakeholders.”
However, within days, the share price plummeted from $121 to $64, and then to $49 when Forward was forced by court action to close on the deal, which led to the termination of Schmitt. The drop continued even after the board’s decision to appoint Shawn Stewart, formerly of CEVA Logistics, as CEO. Within days it was down to $23 per share, and it continued to drop to $12 per share by May 23 until activist shareholders got involved.
What is noteworthy about these developments is that while the return for shareholders dropped by over 80% with such board action, the CEO lost the job and other named executives had their total compensation reduced by 40%, the board members gave themselves a 15% raise in 2023 over 2022. WOW!
So much for the captain (the board) of the ship taking responsibility for approving the Omni transaction that was awful, not just in concept, but horrendous in the premium for a company in financial trouble.
The board even failed to undo the deal after a few shareholders threw it a lifeline when they filed a complaint in Tennessee courts to require the company to seek shareholder approval.
And now, even with changes in CEO and chief financial officer, Forward lacks confidence from the investment community that it can recover from this history-making worst M&A transaction in the transportation industry.
Until this deal, Yellow had that honor with its two deals in 2003 and 2005 that contributed to its demise in August 2023. However, those transactions gave Yellow a commanding 17.5% share of the less-than-truckload market, and thus with support from shippers it survived for 20 years.
However, with Forward having just 1.6% of the LTL market, it will not have the same support from LTL shippers. And while it has a larger share of expedited LTL service, that service is largely used by freight forwarders who are also competitors of Omni.
The Omni transaction approved by the current board has reduced the market cap of the company by 85% in barely nine months, from $3.16 billion to $444 million. This decline is even more noteworthy when the market has been very favorable to other LTL carriers. During this period, XPO’s (NYSE: XPO) and Saia’s (NASDAQ: SAIA) market caps have increased by 40% and 75%, respectively.
And, while the board is responsible for approving such a failed transaction, the bankers (Morgan Stanley and CitiGroup) and other advisers (Oliver Wyman) should have known it would be a bad deal and alerted the board. But they were conflicted with making millions in fees for themselves. In spite of such failures by high-paid advisers, boards continue to overlook such outcomes in selecting bankers and consultants.
A bad deal does not get better with passage of time or change of people. A rotten apple added to a basket of good apples will spoil all other apples.
The board needs to take the bitter pill of undoing the deal by selling off portions of Omni that take it out of offering services that are competitive with its key customers and return to its core business of offering expedited LTL service.
A marriage consummated by threat of legal action is bound to fail. The sooner the divorce occurs, the better it will be for all parties.
Satish Jindel is president of SJ Consulting Group Inc. and has deep expertise in the LTL industry.
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