Knight Transportation And Swift Transportation To Merge; Knight Cuts Q1 EPS View

(RTTNews) - Knight Transportation Inc. (KNX) and Swift Transportation Co. (SWFT) said that their boards approved a merger of Knight and Swift in an all-stock transaction. The combined company will be named Knight-Swift Transportation Holdings Inc. and will trade under the ticker "KNX.

The holding company structure will enable the Knight and Swift businesses to operate under common ownership and share best practices, while maintaining distinct brands and operations. The company will remain headquartered in Phoenix, Arizona operating with approximately 23,000 tractors, 77,000 trailers, and 28,000 employees.

As per the terms of the definitive agreement each Swift share will convert into 0.72 shares of Knight-Swift by means of a reverse stock split. Each share of Knight will be exchanged for one Knight-Swift share. Based on the $30.65 closing price of Knight shares on April 7, 2017, the last trading day prior to the announcement, the implied value per share of Swift is $22.07.

Upon closing of the transaction, Swift stockholders will own approximately 54 percent and Knight stockholders will own approximately 46 percent of the combined company. Based on Knight's closing share price on April 7, 2017, the number of combined company shares expected to be outstanding after closing and the combined net debt of Swift and Knight as of December 31, 2016, the combined company would have an implied enterprise value of approximately $6 billion.

Knight is expected to be the accounting acquirer, and the transaction is expected to be accretive to adjusted earnings per share with expected pre-tax synergies of approximately $15 million in the second half of 2017, $100 million in 2018, and $150 million in 2019.

Knight said that the transaction is expected to be accretive to adjusted earnings per share and to generate pre-tax revenue and cost synergies of approximately $15 million in the second half of 2017, $100 million in 2018 and $150 million in 2019. Synergies are expected to be realized from sharing best practices from each company, improving yield, identifying purchasing economies, benefitting from broader geographic scale and capitalizing on an enhanced cash flow profile to reduce interest costs.

On a combined basis, Knight and Swift generated approximately $5.1 billion in total revenue, $416 million in adjusted operating income and $806 million in Adjusted EBITDA for 2016.

Post-closing, Knight-Swift expects to pay its stockholders quarterly dividends of $0.06 per share. On a combined basis, free cash flow was approximately $495 million for 2016. The companies expect net capital expenditures to be approximately $345 million to $410 million for the full year 2017.

The Board of Directors of Knight-Swift will comprise all Knight directors and four current Swift directors. The Jerry Moyes family will initially be entitled to designate two directors reasonably acceptable to the Board, one of whom must be independent, with the initial designees being Glenn Brown and Jerry Moyes. The remaining two directors were chosen by the Swift board and will be Richard Dozer and David Vander Ploeg. Kevin Knight will serve as Executive Chairman of the Board and Gary Knight will serve as Vice Chairman.

The executive team of Knight-Swift will be led by Kevin Knight as Executive Chairman, Dave Jackson as Chief Executive Officer and Adam Miller as Chief Financial Officer. Following the close of the transaction, Kevin Knight will serve as President of the Swift operating entities. Jerry Moyes will serve as a non-employee senior advisor to Kevin and Gary Knight.

Richard Stocking, Chief Executive Officer of Swift, and Ginnie Henkels, Chief Financial Officer of Swift, have chosen to pursue other opportunities following the closing of the transaction. In the interim, both Mr. Stocking and Ms. Henkels will continue to lead Swift to ensure a smooth transition.

The transaction is subject to customary conditions, including the approval of the stockholders of Knight and Swift, as well as antitrust approvals. The Jerry Moyes family, which holds approximately 56 percent of the Swift voting power, and Kevin Knight and Gary Knight, who hold approximately 10 percent of the Knight voting power, have agreed to vote their shares in favor of the transaction.

Following the close of the transaction, which is expected to occur in the third quarter of 2017, Knight-Swift is expected to have approximately 176.1 million shares outstanding and 178.9 million shares on a fully diluted basis. The Knight-Swift shares are expected to trade on the New York Stock Exchange under the symbol "KNX."

Separately, Swift Transportation announces that it expects Diluted Earnings Per Share to be between $0.09 - $0.10 and Adjusted earnings per share to be within the range of $0.11 to $0.12 for the first quarter of 2017.

Swift said it that the difficult operating environment will persist into the second quarter, and as such, expect EPS to be in the range of $0.16 - $0.21 and Adjusted EPS to be in the range of $0.18 - $0.23. It is cautiously optimistic about the back half of 2017, and look forward to a great 2018 and beyond for company.

In addition, Knight Transportation provided an update on its guidance for the first and second quarter of 2017.

Knight now expects earnings per share will range from $0.16 to $0.18 for its first quarter ended March 31, 2017, compared with its prior estimates of $0.24 to $0.27.

Knight anticipates earnings per share to be in the range of $0.24 to $0.27 for its second quarter ending June 30, 2017, excluding costs associated with the recently announced merger transaction, compared with its prior estimates of $0.27 to $0.30.