Covenant makes regional purchase

Sept. 15, 2006
Covenant Transport is buying Nashville-based regional hauler Star Transportation

Chattanooga-based truckload carrier Covenant Transport is buying Nashville-based regional hauler Star Transportation to tap into growing freight volumes within shorter lanes, said David Parker, Covenant’s chairman, president & CEO.

“We’re strongly committed to a significant regional presence because of the large freight volumes that move in regional lanes,” he explained. “Although our own regional service offering is only nine months old, we’ve always considered it the most difficult to fix. When we became aware that Star was potentially available, we acted decisively and had the major terms agreed to within a couple of weeks.”

Parker said Covenant is buying Star for $40 million in cash from its existing line of credit and assumes $42 million in debt. He noted that Star’s lenders are members of Covenant’s bank group and will remain in place following the transaction.

Beth Franklin, Star’s CEO, will step down and be a consultant for Covenant for one year, while all former Star stockholders agreed to a non-compete clause with Covenant or Star. Jim Brower, a 20-year veteran of Star and its current president and his executive staff will remain in place to run Star as a separate subsidiary of Covenant’s, Parker added.

Founded in 1980, Star operates 600 trucks with an average age of 25 months and operates primarily in the southeastern U.S. Its shipments are concentrated from Texas across the Southeast to Virginia with an average length of haul of 470 miles. Over its last fiscal year, the company posted profits of $7.1 million on $89.6 million in revenue, said Parker

As a result of this acquisition, Covenant plans to reduce its own regional service fleet, dropping 450 tractors and 1,000 trailers by the second quarter of 2007. He added that downsizing Covenant’s regional operation will occur over time as tractors finish their service life and are not replaced.

Though Covenant expects to provide support in areas such as volume purchasing, finance and accounting, and cross marketing, a general integration of operations is not expected, said Parker. “We believe the addition of Star to our corporate group will offer us a prime opportunity to jump-start the turnaround of our regional service offering,” he added.

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