Forward Air CEO Thomas Schmitt, who engineered the acquisition with Omni Logistics that has sliced a massive amount of shareholder value, tried to get out of it and then ultimately closed the deal, is out at the LTL carrier.
The move, announced early Wednesday, came a day after two major ratings agencies weighed in on the Forward Air acquisition of Omni Logistics with reports that were decidedly negative.
S&P Global Ratings said Tuesday that it was lowering its rating on Forward to B+ from BB-, citing renewed review of its acquisition of Omni. Both ratings are under the cutoff mark for investment-grade ratings.
Meanwhile, Fitch Ratings Services did not reduce its rating on LTL carrier Forward (NASDAQ: FWRD), which is at BB-, but it did revise the outlook on Forward to negative from stable, which is often a step taken as a possible prelude to a downgrade. By contrast, S&P has a stable rating on Forward Air, a sign that it believes the metrics at the LTL carrier have nowhere to go but up.
Michael Hance, Forward’s chief legal officer and secretary, has been named interim CEO. He has been with the company since 2006, has served as general counsel since 2008 and chief legal officer since 2014. He also headed the team’s human resources department between 2010 and 2014.
Schmitt’s departure, which has been predicted in some quarters given the collapse in Forward Air’s stock price, means that the two key architects of the Forward Air purchase of Omni Logistics — Schmitt and Omni CEO J.J. Schickel — will both be gone from the much larger company.
Schickel’s departure was announced a week after the two companies reached an out-of-court settlement over a lawsuit brought by Forward Air that sought to invalidate the merger deal announced in August.
The erosion of Forward Air’s stock price has been stunning. Since hitting a 52-week high on July 27, the stock is down almost 63%. The investor community sees the structure of the Omni acquisition as dilutive to existing Forward shareholders.
Schmitt also had been president and chairman at Forward Air. Chris Ruble, COO since 2018 and an employee going back to 1996, will add the president title. In the prepared statement announcing Schmitt’s departure, Ruble was said to have “played a critical role in the successful integration of all of Forward’s acquisitions.”
The independent chairman of the company will be George Mayes. Mayes has been on the board since 2021. He is the founder and CEO of LeanVue, “which provides strategic analysis for global supply chain design and strategy development for managing complex global supply webs,” the company’s website said.
The original agreement called for Omni shareholders to receive $150 million in cash and a 37.7% equity stake in Forward. The enterprise value of Omni at the time of the acquisition was $3.2 billion. Under the revised deal that came out of the lawsuit settlement, the cash going to Omni shareholders was cut to $20 million and the equity distribution was cut to 35% from 37.7% The enterprise value was estimated to have fallen to $2.1 billion.
But the announcement of the deal did not stop the stock from sliding, with Forward Air regularly notching 52-week lows in the two weeks since the revised agreement was announced January 22.
Ratings agencies were originally positive on the deal
The move on ratings by S&P and Fitch mark a significant reversal from what the ratings agencies said in September when the deal was first announced. At that time, both agencies made no changes in their ratings, but issued comments that in the case of S&P, could be interpreted as supportive of the deal while Fitch was more cautious.
Debt taken on by Forward Air to complete the acquisition of Omni was its first foray into the public debt markets. The initial BB- rating was placed on $925 million in senior secured notes.
With S&P Global Ratings making a cut in its rating and Fitch going to the less drastic step of a cut in the outlook, it is the former whose actions are the more negative of the two.
For the ratings agencies, their decisions always come down to numbers and a company’s ability to service its debt. The numbers laid out by S&P in its rating were stark in describing the changes it now sees in Forward Air’s ability to service its debt.
S&P said it expects Forward Air’s adjusted debt to EBITDA ratio to have come in at 8.6X in 2023 (the company has not yet issued its earnings) and 6.2X in 2024. The earlier forecasts were 7.2X and 5.1X, respectively. Funds from Operations (FFO) are projected to have been 4.5% in 2023 and 8.2% in 2024, deteriorating from 5.4% and 9.9%, respectively. (S&P defines FFO as a “company’s ability to generate recurring cash flows from operations independent of changes in working capital. We derive our FFO metric from adjusted EBITDA and subtract cash interest and cash taxes.”)
More articles by John Kingston
New Jersey hikes truck insurance minimum to $1.5M, higher than most states
14-year-old case that brought ABC test to New Jersey was just settled
C.H. Robinson’s Q4 sees little improvement; shift at top of brokerage unit
The post Thomas Schmitt out as CEO at beleaguered Forward Air appeared first on FreightWaves.