A letter to a Delaware court overseeing a dispute between potential merger mates Forward Air and Omni Logistics says Forward and its CEO, Tom Schmitt, “wrongfully withheld” requested documents from board meetings discussing the transaction.
“In short, it is not credible that after two custodial interviews, a motion to compel, and a partial production of calendar entries in response to that motion, Mr. Schmitt was under any misimpression that his cache of highly relevant notes was not required to be collected for counsel’s review and produced,” a Dec. 20 letter from Omni’s counsel to the Delaware Court of Chancery stated.
It said the documents were provided just hours after Schmitt submitted a court-ordered “note taking and destroying practices” affidavit and that some items continued to be destroyed after he was instructed not to.
“We also do not accept Mr. Schmitt’s claims about the daily destruction of his daily calendar entries, which, by his own admission, continued after he received a litigation hold notice,” the letter said. “That daily destruction of documents continued through a critical period in which Mr. Schmitt participated in regular board meetings and discussions about the transaction and plans to avoid the transaction.”
All told, more than 1,300 pages of Schmitt’s handwritten notes and other items pertaining to the merger have been handed over to Omni.
Forward (NASDAQ: FWRD) announced in August plans to merge with freight forwarder Omni in a deal initially valuing the company at $3.2 billion. The boards of both companies approved the transaction, but some of Forward’s shareholders were rankled as the deal structure didn’t require their approval ahead of closing.
A group of shareholders is attempting to block the deal, claiming damages and saying their rights as stockholders were breached when they weren’t permitted a vote.
Other shareholders have openly criticized the debt-and-equity transaction, claiming the price tag is too high — roughly 18 times trailing adjusted earnings before interest, taxes, depreciation and amortization excluding deal synergies. The deal would be 38% dilutive to existing shareholders, and Forward would be required to take on $1.4 billion of Omni’s debt, pushing leverage to roughly 4 times adjusted EBITDA at closing.
Forward has asked the court to let it out of the deal, claiming Omni failed to meet pre-closing conditions and that its recent financial targets were worse than expected. A recent Securities and Exchange Commission filing from Forward showed Omni’s EBITDA was slightly negative in the first nine months of 2023 compared to EBITDA of more than $100 million in the same period of 2022.
Omni has said it has met all requirements and that Forward is misusing its “no growth” projection as a way to exit the deal following backlash from investors. It has asked the court to force Forward to the closing table.
A hearing on the matter is set for Jan. 19.
“As will be shown at trial, these newly produced documents contain critical evidence relevant to the parties’ dispute, including evidence of what actually happened at Forward Air’s board meetings that is not reflected in the formal board record,” the letter read.
The deal price is currently closer to $2.6 billion given a 40% sell-off in Forward’s stock.
Forward has provided no update on the interest and fees it is incurring as part of the deal’s financing. Interest expense, after netting out interest earned in an escrow account, on $725 million of 9.5% notes issued in early October is roughly $100,000 per day. Fees to retain lender commitments for a $1.125 billion term loan facility were set to increase to nearly $310,000 per day after Nov. 23.
FreightWaves didn’t receive a response from Forward or Omni prior to this publication.
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