With state of merger deal in flux, Omni Logistics files lawsuit against Forward Air

Following an October 26 announcement, in which Greenville, Tenn.-based asset-light freight and logistics services provider Forward Air stated it may not go through with its planned acquisition of Dallas-based Omni Logistics, an asset-light, high-touch logistics and supply chain services provider, which was announced in August and expected to close later this year, Omni said yesterday it is filing a lawsuit against Forward Air to enforce the agreement.

Omni said it in its complaint filed in the Delaware Court of Chancery against Forward Air Corporation that it “seeks specific performance under the Agreement and Plan of Merger between Omni and Forward Air dated August 10, 2023 (the “Merger Agreement”), requiring Forward Air to comply with its obligations to complete the transaction.”

In an open letter to Forward Air shareholders, Omni Logistics CEO J.J. Schickel wrote that Omni believes believe this transaction will create significant value for Forward Air, Omni, and its collective stakeholders.

“The industry has been evolving towards a more integrated service model for customers, accelerated by the supply chain disruptions and heightened customer focus on cost and efficiencies that have marked the past few years,” wrote Schickel. “Forward Air CEO Tom Schmitt articulated as much on Forward Air’s earnings call [yesterday] morning, and we agree. That evolution underlies the fundamental strategic logic at the core of our transaction: combining Forward Air and Omni enables our two companies to meet the evolving needs of customers by creating an all-in-one expedited LTL partner that removes a meaningful layer of cost and complexity, without sacrificing service and with the experience and expertise of our highly seasoned, proven commercial team.

And he added that Omni’s LTL revenue pipeline has increased by around 480% since the announcement in anticipation of the unique Omni-Forward Air proposition.

“Forward Air’s customers appear to be responding similarly: as they stated in their October 30 earnings press release, since the combination was announced on August 10, their ‘average daily volumes with domestic freight forwarders increased by more than 14%,’” he wrote. “Just as our customers want to work directly with their LTL provider, Forward Air wants to work directly with shippers; as they’ve said publicly, that was a key driver for this transaction. Despite Forward Air’s leadership position in the expedited space, they are the only publicly traded LTL provider without a direct relationship with the overwhelming majority of its end customers—and that is not a position for long-term strength.”

Concluding his letter, Schickel wrote that Omni believes Forward Air’s threat to terminate the transaction is unenforceable under the companies’ binding contractual agreement, stating that no impediment exists to closing the transaction immediately.

As previously reported byLM, Forward said last week that it believes that Omni has not complied with certain obligations of the merger agreement, adding that it believes the closing conditions of the agreement “will not be satisfied at the anticipated closing of the transactions under the Merger Agreement, and Forward will not be obligated to close,” and “As a result, Forward is considering its rights and obligations under the Merger Agreement, including potentially exercising its right to terminate the Merger Agreement.”

Established in 2000, Omni provides shippers with various offerings, including domestic and international freight forwarding, fulfillment services, customs brokerage, and distribution and value-added services for time-sensitive freight to U.S.-based companies on a domestic and international basis.

The companies cited myriad benefits of this transaction in August, including:

• creating a scaled, premier, high-value, less-than-truckload enterprise focused on offering shippers with multimodal solutions for complex, high-service and high-value freight needs;
• 全方位整合最先进的商业engine providing Forward with access to more than 7,000 customers, an increased domestic footprint, and a full portfolio of logistics services, multimodal operations, and supply chain services; and
• Omni’s customers seeing benefits from Forward’s Precision Execution, providing customers with some of the fastest industry transit times, on-time performance, and lowest claim rates, among other benefits

A key strategic benefit of this transaction identified by the companies included advancing category leadership in expedited LTL freight in the roughly $15 billion expedited LTL total addressable market, with Forward servicing $1 billion of this market. They added that the combined company will see benefits from a direct-to-market salesforce and increased footprint.

\Other cited strategic benefits included: the combined company offering complementary services, including expedited services, intermodal transfer, truckload brokerage, and warehouse and distribution capabilities, coupled with the long-term growth of Forward’s LTL business being a competitive differentiator for the combined company; enhancing platform scale; combining industry-leading teams; expanding its geographic footprint and capacity to better serve the its LTL network; and expanding Forward’s expedited freight customer base.

As for Omni, the company said last week that it fully complied with all the required provisions of the Agreement and Plan of Merger between Omni and Forward Air dated August 10, 2023.

“Any attempt by Forward Air to suggest otherwise is unfounded and has no basis,” the company said. “Omni believes the Merger Agreement is legally binding and intends to enforce the Merger Agreement and close the transaction as expeditiously as possible. Omni remains fully confident that uniting Omni and Forward Air as the premium expedited LTL provider will ensure that the combined company is best positioned to compete and win in an increasingly dynamic industry environment for the benefit of both companies’ shareholders, customers, and employees.”

In an August interview withLM前进空中董事长,总裁兼首席Executive Officer Tom Schmitt explained that, in Omni, Forward saw a company that it considered the best in selling high-value freight to shippers.

“And that's where it dawned on us, and it dawned on them that we are the best operations machine in handling high-value freight,” he said. “They are the best commercial machine selling high value freight. If you put the two of them together, you have a powerhouse that should be the lead category leader in North America handling high value freight from the selling process all the way to getting it to peoples’ destinations. And, so, we just being in the industry, saw something here, where you could get those two complimentary halves—operations excellence and commercial engine—together. And they have been a good growing customer of ours. This is why we know that their freight focus is the same as ours. And that's why we know that in watching them and working with them, they're one of our top five largest LTL customers today. So, we know them quite well, and the first-hand experience, in terms of best-in-class operations and best-in-class commercial is not something that we know through somebody else about. We actually have worked with this company firsthand for the last several years.”

And he said that the deal's value-add for shippers comes in the form of what he called a very strong value proposition.

“The value proposition is very simple,” he said. “We are among the fastest on big lanes, on-time performance and low damages claims. So…when you ship medical equipment that, in some cases, costs several hundreds of thousands of dollars, or when you ship touring equipment for national tour tours by artists throughout the country, there's a zero propensity and no tolerance for damages or for being late. For those types of value propositions, we now have a chance to get in front of those customers directly and say, 'when you have a shipment of consequence where being on time and payment being fast and having absolute best probability for intact shipments, choose Forward Air.' And that's the conversation we can now directly have once we close this transaction and become one with Omni you can that conversation directly with thousands of customers.”

But on the company’s October 31 third quarter earnings call, Schmitt said that Forward feels very strongly that the obligation to close is not there, and the termination is an option, adding that Omni has been a business partner and a good customer of Forward’s.

“We’re going to see—looking for ways to make sure that, that’s getting preserved and enhanced,” he said. “So, we are looking for a resolution, obviously, quickly.

Third quarter earnings, for Forward Air fell 82.2% annually, with net income at $9.29 million, and total operating revenue was down 18.9%, to $413.4 million.

Robert W. Baird & Co. analyst Garrett Holland wrote in a research note that breaking the Omni deal would be a clear positive and help Forward Air refocus on its core LTL business.

“Maximizing profitability of the LTL business is our preferred strategy until execution improves,” he wrote. “FWRD remains more of a special situation, pending clarity on the Omni transaction.”