USA Truck's Poison Pill Ready as It Fights Off Knight Transportation

USA Truck Inc. of Van Buren has a shareholder rights plan but that might not be enough to hold off a determined rival intent on buying the company.

Then again, USA Truck may be safe with or without a “poison pill,” as such rights plans are often called, if its stock price shows staying power.

Knight Transportation Inc. of Phoenix announced in September that it had offered USA Truck a $242 million package for the company in August. The offer was $9 per share ($95 million cash) and the assumption of $147 million in debt, but USA Truck’s board rejected the offer, which board members said undervalued the company.

USA Truck shares had been trading at less than $6 a share, but since Knight Transportation’s announcement, the share price has soared, clearing $14 briefly at one point Monday. Knight now owns more than 1.3 million USA Truck shares, a 12.4 percent stake.

USA Truck filed a lawsuit against Knight claiming a breach of contract and requesting that Knight forfeit its purchased USA Truck shares. Knight denied the allegations and released a 17-page presentation Nov. 4 that said USA Truck’s promising third-quarter financial results showed “only limited improvement” and its share price was unsupported.

Analysts said Knight’s press release last week was directed at those who had pushed USA Truck’s share price to more than $13 after it had been traded at much lower prices in the preceding weeks. USA Truck was at $6.46 on Sept. 25, nearly $12 on Oct. 21 and has been more than $13 the past few trading days.

One argument is that the rise in market value proved USA Truck was correct in rejecting the offer as too low. The counter-argument is that Knight’s interest in purchasing the company is the reason the stock rose.

Knight said it might pay more than $9 — if the price stays high Knight may not have a choice if it wants to buy USA Truck — but Knight took steps to quash some of the price-inflating speculation. That’s what last week’s news release was about.

“They’re not willing to pay $14,” said Donald Broughton, a transportation analyst with Avondale Partners in St. Louis.

This is the second takeover attempt of USA Truck in as many years. In late 2011, Celadon Group of Indianapolis bought 6 percent of USA Truck stock, but USA Truck rebuffed a meeting, the takeover bid fizzled and Celadon sold its shares last year.

In November 2012, USA Truck announced its board of directors had adopted a shareholder rights plan to protect itself from future takeover bids. The company noted that it knew of no current interest from other companies.

That has changed, of course.

Can the rights plan save USA Truck from the Knight at the door? The plan specifies that should a person or group (in this case Knight) acquire 15 percent of USA Truck stock, other shareholders would then be eligible to buy an additional $24 worth of shares at a 50 percent discount.

Analysts said such poison pill provisions can be effective defenses against hostile takeover bids, especially for smaller companies. About 7.7 percent of Fortune 500 and 7.6 percent of S&P 500 companies have similar provisions, so they’re not exactly common but they aren’t rare either.

Cliff Beckham, the CFO of USA Truck, said the company adopted the rights plan to protect its shareholders while the company’s recovery plan was given a chance to work. The rights plan will expire in November 2014 unless it is voted out at the annual shareholders’ meeting in May.

“We don’t want them losing the earning benefit of our turnaround while we’re still in the early innings,” said Beckham, who declined to comment on Knight’s presentation. “The rights plan strengthens our existing shareholders’ interest.”

(Late last month, USA Truck also sought to protect the company’s executive officers, implementing bonus and severance packages to assure the “focus” of the management team, which is “critical to the successful execution of the Company’s turnaround strategy.”)

One analyst said USA Truck could face pressure from investors with large holdings of stock. Before Knight expressed interest, USA Truck stock was lightly traded, and now with a robust stock price, someone itching to liquidate a few hundred thousand shares may be tempted to side with Knight in order to do so.

But at $9? Maybe in September. But now it looks like the stock won’t drop close to Knight’s target range anytime soon, so USA Truck won’t need any poison pills, though that may hinge on fourth-quarter results.

“They’ve narrowed their operating losses but they’re still losing money,” Broughton said of USA Truck. “The best way to defend against a hostile takeover is a return to profitability. The best defense is success.”