Activist investor pushes Forward Air to execute ‘value-maximizing sale’

Ancora Holdings Group provided a detailed presentation late Tuesday outlining why Forward Air shareholders should vote out “three unfit legacy directors” it blames for the company’s “disastrous acquisition of Omni Logistics” and “efforts to stall the company’s current sale process.”

The activist investor first penned a letter to shareholders two weeks ago calling for the removal of Chairman George Mayes and directors Javier Polit and Laurie Tucker. It said the three will be forced to resign it they don’t garner 50.1% of the vote at the June 11 annual meeting.

Shares of Greeneville, Tennessee-based Forward Air (NASDAQ: FWRD) closed Tuesday at just $18.04, a far cry from the $110 closing price the stock held prior to the August 2023 merger announcement with Omni.

Forward Air significantly underperforms initial deal targets

The Omni acquisition was structured through a series of transactions to preclude a vote by shareholders as required by Tennessee law. It was funded with $1.85 billion of debt and gave Omni’s private equity backers control over a 38% voting bloc and four board seats. (Some shareholders have taken issue with the entrenchment nature of the deal, as the voting bloc is required to vote in favor of board-chosen directors at elections.)

Forward closed the 2025 first quarter at a 5.3 times net debt leverage ratio, an improvement from 5.5 times at the end of the year but significantly higher than the sub-2 times projected for 2025 when the deal was announced.

On a combined basis, Forward and Omni had pro forma earnings before interest, taxes, depreciation and amortization of $593 million (inclusive of $125 million in expected deal synergies) for the 12-month period ended June 30, 2023 – the last period prior to the 2023 deal announcement. (Forward closed the first quarter with last-12-months’ adjusted EBITDA of just $313 million.)

The underperformance required the company to modify its credit agreement earlier this year to avoid breaching a debt covenant of 4.5 times leverage set for later this year.

“Each of the targeted directors was on the Board in August 2023 when it decided to pursue the Omni Logistics LLC (‘Omni’) acquisition and bears responsibility for the disastrous deal, which was criticized by shareholders and independent onlookers because it burdened the Company with substantial debt, presented operational and integration challenges, and strained customer relations,” the Ancora presentation said.

“We believe Forward Air has limited opportunity as a standalone public company – with its level of debt, remaining independent will likely mean additional dilution for the Company’s equity holders.”

Ancora says board now focused on self-preservation

Ancora said Forward’s board has been “slow-walking” a strategic review that was announced at the beginning of the year despite months of pressure from investors to explore selling the company or consider other options.

“Since reactively announcing a strategic alternatives process five months ago to avoid another proxy contest, the Board appears to have made little progress toward achieving a sale, the presentation said. “Our diligence indicates that non-disclosure agreements have only recently been distributed to interested parties – a necessary first step – despite the fact that Forward Air has had multiple private equity firms in its shareholder base over the last year.”

Ancora also accused Forward’s board of further entrenchment maneuvers by changing its stance on Tennessee M&A law governing engagement with “interested shareholders,” or those holding 10% or more of the voting power.

“After choosing to opt out of the Tennessee Business Combination Act for years, the Board suddenly chose not to opt out in 2024 – just a week after a private equity firm [Clearlake Capital Group] reported a 13.8% stake in Forward Air – without disclosing why.”

Forward is currently precluded under Tennessee law from engaging with interested shareholders for a five-year period.

However, Forward has asked shareholders to approve a reincorporation in Delaware to make it easier to sell the company. (Delaware has similar restrictions for interested shareholders, but the ownership threshold is 15%.)

Ancora said the move is simply an effort to “paper over the Board’s past actions” and that “the board has not disclosed why it determined not to opt out of the Tennessee Business Combination Act, after consistently opting out in previous years.”

“If truly necessary, the belated Delaware reincorporation plan is further evidence that the Board continues to be two steps behind and is not working proactively to maximize value for shareholders,” Ancora said. “These directors only take action when their backs are against the wall.”

Ancora also said the company isn’t improving governance practices as part of the move to Delaware, pointing to the board’s restriction on shareholder actions without unanimous written consent and a new clause that narrows the window for calling special meetings.

Changes at Forward not enough to appease investors

Forward has made moves following the January 2024 closing of the Omni acquisition. It replaced the deal’s architect and former CEO Tom Schmitt, among other C-suite changes.

The 12-person board has also seen turnover. Forward CEO Shawn Stewart is the only employee on the board. The remaining seats are held by independent directors. Seven of those were appointed after the merger, three of whom were designated by Omni. Other board members have either resigned or decided not to stand for reelection. (A recent proxy filing from Forward calls for the board to be reset at 11 members.)

Stewart joined Forward a year ago, after the company was forced to close on the deal. He previously served as a unit head at Ceva Logistics and has added former colleagues to Forward’s roster. The new leadership group, however, hasn’t formally communicated a go-to-market strategy.

In addition to net debt leverage stepping slightly lower in the first quarter, the company’s liquidity position improved modestly.

The company has worked to improve the freight mix at its legacy expedited less-than-truckload unit. Corrective pricing actions wrapped up in early February, and the business is focused on winning heavier shipments, which often carry better margins.

Forward reported a 10.4% adjusted EBITDA margin in the unit in the first quarter, which was 380 basis points better sequentially and outperformed normal seasonal trends.

Ancora called out the unit’s declining EBITDA and depressed margins since the deal was announced. On a trailing 12-month basis, EBITDA has nearly been cut in half to $106 million and the EBITDA margin is off roughly 400 bps to 9.7%.

What’s Forward Air worth?

Ancora pointed to several opportunities for the legacy intermediary to freight forwarders and cargo airlines. It said the company now has direct access to sell to shippers and should be able to better leverage its more than 250 terminals and 40 bonded warehouses.

It also estimates that the company’s yields are 32% below market despite offering an expedited, premium service. That in part explains the falloff in its expedited LTL operating ratio (inverse of operating margin), which was 93.9% last year (93.7% in the first quarter). It said “the right leadership team with the right strategy” could move ORs back to the low 80s like they were in 2011 to 2013.

“By utilizing the Company’s network, leveraging new shipping partners, effectively pricing its premium offerings and densifying the network on a recapitalized balance sheet, potential suitors have an opportunity to [generate] more than 2.5x operating income [growth] at modest assumed [revenue] growth rates and historical operating ratio levels.”

Ancora provided takeout scenarios ranging from 31% to 148% upside to Forward’s recent share price based on EBITDA multiples ranging from nine times to 12 times, respectively. 

“We have continued to share our view with the Board and management that the best risk-adjusted outcome for all shareholders is a sale of the Company,” Ancora said. “But Forward Air appears to be running down the clock, reducing the chance of achieving a value-maximizing sale – and increasing the risk of further value destruction should a sale not materialize.”

This isn’t Ancora’s first activist interest in Forward Air. In 2021, it was successful with a plan to improve freight mix, redirect capital allocation and change the board’s composition.

Ancora currently holds a 4% stake in Forward Air.

“The Board and management team are entirely focused on taking deliberate actions to maximize shareholder value,” a spokesperson with Forward Air told FreightWaves. “The Board is actively engaged in leading the strategic review process, which, as we noted, is underway, and the continued oversight of our transformation strategy. We firmly believe that all of our directors are vital to these efforts.”

More FreightWaves articles by Todd Maiden:

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