Activist investor launches proxy battle with Forward Air over Board seats

Boardroom angst is heating up this week for Greenville, Tenn.- based asset-light freight and logistics services provider Forward Air, with the hedge fund group of Cleveland-based Ancora Holdings Inc. launching a proxy fight focusing on getting four directors added to the Forward Air Board of Directors.

In a wide-ranging open letter to Forward Air shareholders written by Ancora Holdings Chairman and Chief Executive Officer Frederick DiSanto, Ancora presented its case for the four directors it intends to nominate to stand for election at the Forward Air 2021 Annual Meeting of Shareholders. The nominees include: Scott M. Niswonger, Forward Air’s founder; Andrew C. Clarke, former Forward Air CFO, shareholder representative James Chadwick of Ancora, and Dawn Garibaldi, an executive leadership specialist.     

Ancora officials said that Ancora Holdings Inc. and the other participants in the solicitation own roughly 6.3% of outstanding Forward Air’s outstanding shares.

In the letter, Ancora explained that the Forward Air Board of Directors “must be significantly reconstituted to address the Company’s prolonged stock price and operating underperformance, which Ancora believes has been largely driven by the Board’s poor operational oversight, ineffective capital allocation strategy and failure to optimize the Company’s balance sheet.”

What’s more, it added that going back over the past decade, the growth through acquisition strategy Forward Air has taken, which have focused on new service offerings, have been what it described as margin and return dilutive to its core business. And it also observed that further hindering things was that the focus on acquisitions diverted management and the Board from effectively operating Forward Air’s core expedited LTL business, which has seen a decline of more than 1,000 basis points in operating margins.

Over the period of these acquisitions, Ancora said that Forward Air spent around $975 million on acquisitions and capex, with its return on invested capital declining from roughly 30% to 15%, which has led to the company being what Ancora called a convoluted story for investors.

Other factors that have impacted Forward Air shareholders cited by Ancora include:

• significant market deterioration in Core Expedited LTL, with the segment’s operating ratio off roughly 350 basis points going back to 2014;
• lackluster relative operating performance and underperformance relative to peers;
• inadequate execution by management; and
• an ineffective Board that lacks material share ownership, driven in part by a lack of vested financial interest in the company by Directors, as well as Thomas Schmitt’s dual role as Chairman and CEO, which curtails the Board’s ability to hold management accountable

People with knowledge of this development speaking on background told LM that the basis of this move by Ancora starts with the identification of an investment opportunity, where it has seen a long-term underperformance and long-term operational issues by Forward Air that have been occurring both from a standpoint of running the business on a day-to-day basis, as well as capital allocation decisions made by management and the Board. And he added that what is happening with Forward has happened with a lot of companies, in that they want to grow their top line and are not focused on growing profitably and subsequently go out and acquire companies.

The area of its business that Forward Air is most well-known for is its core airport-to-airport expedited LTL linehaul network, in which it is a dominant player but whose OR is now in the 90s, whereas in the past was at a better level in the high 70s. And this is the area Ancora maintains Forward needs to focus on an optimize to return to previously higher margin levels. Another core service offering is its truckload brokerage group and is needed to augment capacity on the Forward Air linehaul network, as well as its final-mile expedited freight business.

Ancora’s key strategic pillars for this move, as outlined in its letter, include: naming Clarke as Chairman and initially as Executive Chairman to oversee value transition; rationalize the core Expedited LTL business; optimize capital allocation strategy; pursue non-core business divestitures, including Forward’s Intermodal and Pool Distribution business, which Ancora said are not critical to Forward’s business and have lower margins; and elect new representatives and enhance corporate governance.

Ancora said that over the past several months, it “has attempted to reach an amicable resolution with Forward Air,” relating to its concerns about the company. And it also observed that the incumbent Forward board and management team have not complied to enact the changes Ancora maintains are necessary to drive shareholder value and serve as the rationale for nominating its Board candidates.

In a statement issued yesterday, Forward Air said that it believes Forward is on the right path to deliver sustainable growth for shareholders, noting that the company is open-minded and receptive to ideas that may enhance value or its operations.

“To that end, members of the Board and management team have held numerous and extensive discussions with Ancora and members of its shareholder group, including Andrew Clarke and Scott Niswonger (collectively the “Ancora Group”), over the past several months to better understand its views on the Company’s strategy and progress,” it said. “Through these discussions, the Board determined that it is either already executing on—or intends to undertake—many of the initiatives suggested by Ancora. In the areas where the parties disagree, the Board and management believe we can create superior value under the Forward strategic plan currently being executed.”