The Deal: USA Truck Rejects $242M Knight Transportation Bid

NEW YORK ( The Deal) -- Trucking firm Knight Transportation ( KNX) on Thursday, Sept. 26, went public with a $242 million bid for USA Truck ( USAK) after the smaller rival rebuffed Knight's private overtures.

Phoenix-based Knight is offering $9 per share for USA Truck, a premium of 39% to the target's Wednesday close. The bid values USA Truck's equity at about $95 million, with Knight also assuming $147 million in USA Truck debt as a part of the offer.

Knight in a regulatory filing said that it submitted its $9 per share offer to Van Buren, Ark.-based USA Truck on Aug. 28, but was rejected on Sept. 6. Knight CEO Kevin Knight in a letter accompanying the bid said the offer would "eliminate the significant execution risk" accompanying USA Truck's turnaround plan and "reverse the erosion of value stemming from eight consecutive quarters" of losses at the target.

"Our company has a demonstrated history of operational excellence, and we believe that we can meaningfully increase the financial performance of USA Truck's operations," Knight said in a statement Thursday. "Although we believe our current proposal would provide full and fair value to USA Truck shareholders, we would be prepared to modestly increase our proposed purchase price if additional value is identified during the due diligence process."

Shares of USA Truck climbed 36% to $8.79 apiece on Thursday afternoon. The company offered no immediate response to the proposal.

USA Truck has a fleet of about 2,200 tractors and 6,000 trailers, generating sales of $530.95 million in the 12 months ending June 30. Knight by comparison has 3,940 tractors and generated sales of $960.4 million in the same period.

KeyBanc Capital Markets analyst Todd C. Fowler estimated the offer is valued at about 9 times trailing EBITDA and 0.5 times trailing revenue, which he said is "at the higher end" of recent transactions. Fowler, however, noted those estimates exclude potential synergies as well as possible proceeds from disposing of excess equipment and facilities.

Anthony P. Gallo, senior analyst with Wells Fargo Securities, in a note said that with secular growth absent from the truckload business "a turnaround acquisition could be a sound strategy" for Knight. USA Truck would be substantially larger than other deals Knight has done, Gallo said, but "we think the management depth at Knight is about a strong as it has ever been."

Knight is the latest in a series of suitors for USA Truck, which has struggled to turn a profit dating back to 2008. Activist shareholder Liberate Technologies made a $240 million unsolicited bid in 2006, and trucker Celadon Group ( CGI) in 2011 announced a 6.3% stake ahead of a potential offer.

Celadon sold its shares in March 2012, though analyst Fowler noted that USA Truck has overhauled parts of its board and management since.

Knight is being advised by Evercore Partners ( EVR) and Fried, Frank, Harris, Shriver & Jacobson.

Written by Lou Whiteman