The Elon Musk approach of publicly criticizing a company you’ve agreed to acquire often leads to dissatisfaction when the deal is finalized.
Recently, U.S. trucking firm Forward Air concluded its acquisition of Dallas-based freight forwarder Omni Logistics, marking the end of a saga that might find its way into business school textbooks. Initially announced last August, the deal triggered a negative response from Forward’s investors, prompting CEO Thomas Schmitt to attempt its cancellation. However, Omni retaliated with a lawsuit in Delaware, resulting in a legally binding agreement that required mutual consent to nullify the initial arrangement. Schmitt’s allegations of covenant breaches by Omni appeared weak, echoing Musk’s criticism of Twitter shortly after bidding $44 billion for it in 2022.
Ultimately, Forward and Omni reached an agreement to proceed with the merger. Unlike Musk, Schmitt managed to negotiate improved terms with Omni’s owners, reducing the cash component from $150 million to $20 million and adjusting the stock component to potentially grant them 35% of the combined entity, down from 37.7%. Nevertheless, investors remained discontented as the deal circumvented the necessity for a shareholder vote by compensating Omni predominantly in preferred stock, which is likely to convert into dilutive common equity.
Forward’s stock, which has declined by 61% over six months, experienced fluctuations throughout the deal’s progression. While rumors of its cancellation initially caused a surge, the revised agreement led to a subsequent decline. Despite Forward’s reduced valuation and potential strategies to mitigate debt, uncertainties linger regarding management changes and investor sentiment post-merger.
The prolonged drama between the companies has left both executives with grievances, undermining investor confidence. Forward’s doubts regarding Omni’s Ebitda projections further eroded trust, given the limited financial disclosures from the private company.
Looking ahead, without substantial leadership changes, investor apprehension may persist, potentially exacerbating stock declines. The reduced value of the deal for Omni’s owners underscores the challenges of overpaying for acquisitions during uncertain times, highlighting the risks of proceeding with a contentious agreement against investor sentiment.
In hindsight, Schmitt’s decision to pursue a significant deal without shareholder approval was ill-advised. Attempting to backtrack only compounded the situation, portraying weakness amidst a challenging acquisition process.