Forward Air announced new financial targets Tuesday and reiterated plans to primarily focus on the premium less-than-truckload market going forward. However, its new forecasts didn’t include freight forwarder Omni Logistics, which it made a bid to merge with in August.
Forward (NASDAQ: FWRD) is forecasting consolidated annual revenue of $2.5 billion by 2026 compared to just under $2 billion last year and implied guidance of $1.67 billion for 2023. That represents nearly a 15% compound annual growth rate over the three-year period from this year’s depressed level. Of that, 80% is expected to be generated by its LTL segment compared to an estimate for a 57% contribution this year.
Management has identified $15 billion in premium LTL opportunities, which include freight associated with events and trade shows as well as the transportation of high-priced medical equipment, both of which are areas of expertise for the expedited service provider. The company will now sell its services directly to shippers in addition to its legacy business, which markets service through freight forwarders.
The new forecast calls for LTL to see a sub-80% operating ratio, which compares favorably to the 85% OR the unit is operating at now.
Forward (NASDAQ: FWRD) also reiterated plans for a strategic review of its noncore business segments. Those plans could include divesting the units if they are found to not be fully supportive of its LTL operations.
Forward’s foray into direct selling was advanced in August when it announced it would merge with freight forwarder Omni in a $3.2 billion transaction. However, the deal quickly received backlash from shareholders and some customers.
Shareholders were able to temporarily block the transaction in a Tennessee court, saying their rights were violated when they weren’t given a vote on the deal. However, that restraining order was recently dissolved, allowing Forward to proceed with the closing. That’s when Forward said it may not close on the transaction, alleging Omni hadn’t performed certain pre-closing requirements.
“At this point, we do not feel there’s an obligation to close,” said Forward Chairman, President and CEO Tom Schmitt on Tuesday at Stephens 25th Annual Investment Conference in Nashville, Tennessee.
“We, over the last several weeks, feel very strongly that in the process of going through the transaction … as we went to credit rating agencies, as we went to the debt markets, that there was a breach by Omni in terms of providing information to us late or incomplete and we were put in a situation where we represented facts perhaps differently than we would have done if we had that information,” Schmitt explained.
Omni, however, maintains it has complied with all pre-closing obligations.
Omni filed a lawsuit at the end of October asking a Delaware court to force Forward to carry through with the planned merger between the two companies. It said Forward is trying to exit the deal after receiving pushback from shareholders that have publicly criticized the price tag and the amount of debt Forward will take on to fund it.
Shares of FWRD gapped more than 40% lower in the days that followed the deal announcement.
Omni said in the court filing that Forward has misrepresented an exchange of information between the parties as a breach of the merger agreement.
Omni claims it provided Forward with fourth-quarter projections as requested, but that Forward failed to provide any guidance on how to divide expected deal synergies the merger would produce. It said Forward is using a “what if” scenario against it, claiming the forecasts are “substantially lower than what Omni had reaffirmed at due diligence meetings.”
On Friday, Forward filed a counterclaim against Omni and asked a Delaware court to let it out of the deal.
The transaction faces challenges on two fronts. Shareholders are still attempting to block the deal in a Tennessee court and a Jan. 19 court date has been set in Delaware regarding the dispute with Omni.
No update was provided Tuesday regarding deal-related expenses Forward is incurring.
A previous court filing showed Forward was paying net interest expense of $100,694 per day as it closed on a $725 million notes issuance in early October. It was also paying $70,313 daily to retain lender commitments for a $1.125 billion term loan facility. However, the ticking fees to retain those lenders were set to increase to $309,586 per day after Nov. 23.
Schmitt said even with the “anxiety” the proposed transaction has caused, its domestic forwarders are shipping more freight with it today than they were prior to the announcement. He also said Omni has become Forward’s largest LTL customer over the last several months and remains so today.
“We are going after the high-value LTL market with or without Omni,” Schmitt said, adding that he expects Forward to have a commercial relationship with Omni regardless of the outcome.
Shares of FWRD were up 4.4% on Tuesday at 2:15 p.m. EST compared to the S&P 500, which was up 1.8%.
More FreightWaves articles by Todd Maiden
- Annual LTL GRIs slightly ahead of schedule
- Forward files counterclaim against Omni, seeks path out of merger
- Daseke seeing ‘flight to safety’ as competitors exit
