Activist investor Ancora Holdings Group is calling on Forward Air’s board to begin a strategic review and to engage with potential buyers. In an open letter to the company’s board, the group cited “overwhelmingly negative” total shareholder returns and “significant underperformance” in what it described as a “lost decade” for the expedited trucking company.
The Tuesday letter said the company could better cure its balance sheet and operational issues as a private entity, likely under the stewardship of private equity. It said the sale of the company could garner a premium to the current share price, which has been underwater following a messy merger with Omni Logistics.
“Forward Air now stands at a crossroads. If the Company remains in the public market, it will need to flawlessly execute to achieve deal-related synergies, cut excess costs, fix its highly levered balance sheet and grow in a profitable manner,” Ancora stated in the letter. “New management, which is shackled to many of prior management’s questionable decisions, will have limited margin for error as it tries to pull off a multi-faceted turnaround amidst a soft freight market and with the overhang of a recession.”
The letter said that approximately 22% of Forward’s shares are held by investors that support a strategic review. Ancora currently has a 4% stake in Forward. Irenic Capital, which also holds 4% of the equity, made a similar overture at the end of May.
Shares of FWRD dropped nearly 90% from August 2023 – when it announced it would merge with debt-burdened freight forwarder Omni Logistics through a series of transactions that subverted a shareholder vote – to mid-May of this year. That stretch included a legal challenge from shareholders, public protest from Ancora and other institutional investors, and concern from some of Forward’s customers that its newfound forwarding platform presented direct competitive risks.
The protracted courtship ended in January when Forward was forced to wed Omni after Forward’s own efforts to break the deal were exhausted. The $2.1 billion price tag was funded primarily through debt and equity. (A 35% equity stake was issued to Omni’s private equity backers.) Forward’s current net debt of $1.7 billion stands at 5.2 times adjusted earnings before interest, taxes, depreciation and amortization, within covenant restrictions set by lenders but roughly double the leverage a healthy company carries.
The letter showed shares of FWRD are off 69% over the past 10 years, compared to the S&P 500 and its airfreight and logistics index, which are up 234% and 95%, respectively. Other measures of underperformance were displayed for one-, three- and five-year periods.
Forward’s shares have rebounded from a mid-May low of $12.25 to $30.98 in midday trading on Tuesday but remain well below the $110 level the stock traded at prior to the merger announcement. However, some of the recovery has to do with rumblings of a potential sale and activist interest in fast tracking an overhaul of the company.
Last week, Clearlake Capital, which holds a 13.8% position in Forward, flipped its investment interest from passive to one that allows it to effect change, through a filing with the Securities and Exchange Commission. The private equity firm said it may approach Forward to discuss “strategic alternatives.”
“Now that a private equity firm in the shareholder base has taken the rare step of filing a Schedule 13D that discloses its desire to engage with the Board about strategic alternatives, the impetus is on you to announce a real review of sale options and the retention of truly independent legal and financial advisors,” Ancora’s letter stated. “To be clear, it would undermine the credibility of any process to use the same professionals who profited from and supported the value-destructive acquisition of Omni.”
Shares are up more than 20% since Clearlake’s Wednesday disclosure.
The Tuesday letter also dredged up Ancora’s 2021 dustup with Forward, which resulted in “a refresh of the Board and stronger financial and operational discipline,” and “an all-time high” for Forward’s shares ($124.61). At the time, Ancora was displeased with the company’s capital allocation strategy and its continued pursuit into lower-margin, “noncore” transportation offerings like intermodal, drayage and final mile.
Forward has been in the process of integrating Omni in recent months.
Changes to the C-suite, head count reductions and other belt-tightening initiatives have been some of the highlights shared with the public. The company has outlined $95 million in cost savings. It plans to be cash flow-positive at some point in the back half of this year and should generate adjusted EBITDA of $310 million to $325 million for the full year. However, that is unlikely to lower its leverage ratio in the near term, which has activists pushing for a quicker resolution.
“While a sale may not be your first choice, prioritizing shareholders’ interests and protecting them from more permanent value destruction must be your top priority,” Ancora said.
A request for comment from Forward was not returned by the time of this publication.
Shares of FWRD were off 0.2% at 11:47 a.m. EDT on Tuesday compared to the S&P 500, which was down 0.3%.