Private equity firm Clearlake Capital, which holds a 13.8% equity stake in Forward Air, said it may approach the company to discuss “strategic alternatives.” Last week, the investment firm changed its filing form with the Securities and Exchange Commission from passive interest to a version used by firms seeking to effect change.
The Santa Monica, California-based firm holds 3,825,000 of Forward’s (NASDAQ: FWRD) roughly 28 million outstanding shares, according to the filing. The group now joins other activists interested in Forward like Irenic Capital and Ancora Advisors, which hold 4% and 3% stakes, respectively.
Clearlake’s filing contained boilerplate language around potentially making changes to the board and management team, a possible “merger, reorganization or liquidation,” or seeking other “opportunities to increase shareholder value.”
The activist interest likely stems from Forward’s contested merger with Omni Logistics.
Shares of FWRD plummeted nearly 90% from the deal’s announcement last August to mid-May of this year as the merger was challenged by shareholders in court and opposed by Ancora and other institutional investors.
A proposed deal price of $3.2 billion, which would require Forward to assume Omni’s $1.4 billion in net debt and fork over a 38% equity stake, weighed on the stock. Also, many stakeholders, including Forward’s legacy forwarding customers, had concerns that the deal placed Forward in the role of freight forwarder and “at odds with its existing customers.” Shares were also dragged lower when finger pointing between Forward and Omni ramped up as Forward attempted to break the deal.
The deal ultimately closed with a purchase price of roughly $2.1 billion in January. The reduction was due to the precipitous sell-off in shares and to a lesser degree due to renegotiated terms that modestly reduced the cash consideration and equity stake.
Since then, the company has made changes at key leadership positions, trimmed head count and outlined $95 million in cost savings ($75 million in planned integration synergies and $20 million from the layoffs). It has also begun implementing nondisclosure agreements with its forwarding customers as a signal that it will not tread on their shipper relationships.
Forward’s shares have rebounded from the mid-May low of $12.25 to $31.32 in midday trading on Monday but remain well off the $110 pre-deal price. Shares are up more than 20% since Clearlake’s Wednesday disclosure. The firm is likely interested in a plan that fast tracks deleveraging Forward’s balance sheet, among other revenue and cost-saving initiatives.
Forward closed the second quarter with $1.7 billion in net debt, 5.2 times adjusted earnings before interest, taxes, depreciation and amortization, but within covenant parameters. It expects to generate $310 million to $325 million in adjusted EBITDA in 2024 and to be cash flow-positive at some point in the back half of the year.
Requests for comment from Forward and Clearlake were not returned by the time of this publication.
