Arkansas Best set to acquire Panther Expedited Services, expand service offerings

In a move designed to expand its end-to-end service offering, freight transportation and logistics services provider Arkansas Best Corp. said today it has agreed to acquire Panther Expedited Services, a Seville, Ohio-based asset-light provider of expedited ground and freight forwarding services and premium logistics services, from its owner Fenway Services LLC, a middle market private equity firm.

Arkansas Best Corp. officials said the transaction is valued at $180 million and is subject to post-closing adjustments, with all of Panther’s outstanding debt being repaid as part of the agreement. They added it is expected to close on or about June 15 and is subject to customary conditions, which includes the funding of a new term loan agreement for Arkansas Best.

Established in 1992, Panther has more than 11,000 global customers, including Fortune 500 corporations, government agencies and blue-chip transportation service providers. Its core focus is on expedited shipping, and it measures service within 15 minutes of promised pick-up and delivery times, and its on-time performance surpasses 98.5 percent, according to its corporate Web site. The company reported $215 million in revenue and $24 million of adjusted EBITDA in 2011.

In terms of how Panther will mesh with Arkansas Best Corp., ABC said that Panther’s specialized equipment, technology and expertise in expedited transportation, premium logistics and global forwarding will enhance Arkansas Best’s end-to-end solutions offering, providing more of the services that customers increasingly demand. The company also said that the current Panther management team, including Panther President and CEO Andrew Clarke, is expected to remain intact.

“Panther Expedited Services is an excellent strategic fit for our company and our customers as we seek to offer end-to-end logistics solutions for progressively more complex supply chains,” said Arkansas Best President and Chief Executive Officer Judy R. McReynolds in a statement. “We are very enthusiastic about this unique transaction, which met all of our criteria for growth among many options we analyzed for several years. With Panther operating as a sister company to ABF Freight System, our core LTL business, we are better positioned to serve as a premier one-source logistics partner to our customers as their shipping needs rapidly evolve. Importantly, we are also creating a more flexible cost structure required to compete in today’s demanding global marketplace.”

ABC cited various ways in which acquiring Panther will strengthen it as a company, including:

• enhanced end-to-end logistics solutions and expertise including time-sensitive, high-value freight services;

• platform for growth in the broader $700 billion transportation and logistics market;

• an expanded customer base and cross-selling opportunities with the addition of more than 11,000 Panther customers in attractive end markets;

• existing, experienced management team to operate and grow the business; and

• proprietary, scalable technology platform and expertise.

McReynolds added on a conference call earlier today that Panther is an excellent strategic fit within Arkansas Best. She said that this arrangement optmizes the company’s capital structure as it takes on a modest level of debt in order to grow its business into a higher margin category.

“To reach our overall goals and maximize value for our shareholders, we have to explore new profit opportunities,” she said. “Cutting costs alone will not get us to where we want to be, while at the same time recognizing the need to return our core LTL business to sustained profitability. We started a process to diversify the company in 2008 and have worked closely with outside advisors to identify and analyze many opportunities to help us do that. We slowed the process a bit during the recession as we rightly focused on ABF’s performance during a difficult economy. We believe this combination is an excellent strategic fit. The combined organization will provide an enhanced end-to-end solutions offering for customers, including LTL, ground expedited, freight forwarding, truck brokerage, warehousing, transportation management and other services with strong brand recognition across the portfolio.”

She added that some customers are choosing to look outside their companies for more complete management of their logistics functions, relying on the expertise of people in the transportation business to most effectively optimize their supply chains, with customers specifically requesting this from ABF. And Panther helps in this case, as she explained it has a strong technology platform that can help ABF customers more effectively meet their transportation management needs. And the combined capabilities of both companies for asset, asset-light, and non-asset businesses will better position Arkansas Best to capture significant revenue in all of these areas. 

This acquisition comes at a time when Arkansas Best is coming off a difficult first quarter earnings performance with an $18.2 million loss while revenue increased 1.4 percent annually to $440.9 million. Revenue has increased for four straight quarters, but the company has missed Wall Street estimates in the last two quarters. The company is also facing significant headwinds with its $750 million lawsuit against LTL competitor YRC and the Teamsters following a ratified labor agreement by YRCW Teamsters members last year on the grounds that these organizations are violating the National Master Freight Agreement, which serves as the collective bargaining agreement for the majority of U.S.-based trucking employees.  The ABF LTL unit, like nearly all LTL players, suffered during the recession, due to lower volumes and lack of pricing power. ABF’s five-year labor agreement with with Teamsters is set to expire in 2013.

Stifel Nicolaus analyst David Ross wrote in a research note that Arkansas Best is about 90 percent unionized LTL and following the completion of this acquisition it will be about 80 percent LTL unionized, with that number likely declining further in the coming years as Panther should grow faster than Arkanas Best’s core LTL business.

“ABF management remains focused on improving its core LTL operation,” wrote Ross. “Everyone at ABF will continue working to lower the OR (operating ratio) with minimal distraction from the new stand-alone segment. The Teamsters will probably not be thrilled that Arkansas Best is buying a non-union company, but the reality is that there are not many union companies left to buy. Plus, Panther’s additional service offerings should feed the ABF LTL network and may create incremental Teamster jobs, so we do not believe there should be a big labor protest to this deal.”

ABF’s OR in the first quarter of this year was 105.5.

Satish Jindel, president of Pittsburgh-based SJ Consulting, told LM that this acquisition may not work out long-term for Arkansas Best.

“I don’t see [a lot of positives] coming out of this,” Jindel said, “due to the current condition of the company. They are consistently losing money and the Teamsters contract situation is looming over them. The timing is not right. If they were profitable and in good shape and were in a better place, say a year from now, then that might have been a better time for this.”