On April 10, 2017, the North American trucking sector woke up to the ringing of merger bells. Phoenix-based major truckload carriers Swift Transportation (SWFT) and Knight Transportation (KNX) announced that they would combine to form Knight-Swift Transportation.
The new entity is set to emerge as a formidable challenger to freight-starved North American truckload carriers. Let’s take a look at the market’s reaction.
Stock price changes
Truckload carriers (JBHT) (LSTR) have been facing the heat of lower freight volumes for nearly the last year. The entire trucking industry is mulling over ways to improve its top line. Trucking companies’ excess capacities will likely result in more mergers and acquisitions going forward.
On April 10, 2017, SWFT stock rose to a record high of $24.7, earning a return of 23.7% for investors. Similarly, KNX stock returned 13% to market participants, closing at $34.7 on the same day.
However, on the following day, merger euphoria passed, and SWFT closed at $23.8, a fall of 3.8%. KNX closed at $33.5, 3.6% lower than the previous day.
Another asset-based transporter, Heartland Express (HTLD), fell 1.7% on April 11, 2017. The leader in the North American trucking business with a presence in almost all verticals, J.B. Hunt Transport Services (JBHT), also delivered a return of -1.7%.
Full truckload service provider Werner Enterprises (WERN) closed at a fall of 2.3% on April 11, 2017. Wisconsin-based, temperature-sensitive truckload carrier Marten Transport (MRTN) yielded a return of -1% on the same day.
Among the subset of the industrials sector (XLI), trucking specifically is facing a variety of issues, the biggest of which are excess capacity, driver retention and remuneration, and the implementation of electronic logging devices (or ELD), among others. Investors should expect more consolidation in the trucking industry if the freight situation and crude’s recovery don’t improve anytime soon.
In this short series, we’ll shed some light on the deal structure between SWFT and KNX and the rationale behind their proposed merger.