Swift rejects Moyes buyout

Phoenix-based truckload carrier Swift Transportation has rejected a $2.2-billion cash buyout offer from Jerry Moyes, its founder and former chairman & CEO, saying in effect that his offer of $29 per share was too low-- which potentially leaves the door open for another bid.

Moyes himself is prepared to offer more money, he said in a letter to Swift’s board of directors. “I am prepared to consider any factors that you believe justify a higher purchase price, and, upon the completion of due diligence, I may be willing to increase my proposed price,” he stated. “Given Swift’s recent performance [however] $29 per share is a full and fair price for Swift's common stock, providing an attractive opportunity for its stockholders to maximize the value of their investment.”

Yet Swift’s board doesn’t seem to think Moyes’ $29 per share offer is that great. That’s largely because Swift’s stock has been trading at $27 to $28 per share lately and hit a high of $33.60 back in July.

Still, Moyes has room to increase his offer. He could roll over substantially all of his current investment in Swift (some 38% of its stock) along with a written commitment from Morgan Stanley for up to $2.5 billion.

Moyes, who founded Swift in 1966 and served as chairman & CEO for nearly four decades, decided to step down from both his executive positions in October of last year. But that change didn’t come easy or willingly. Moyes stepped down after settling a lawsuit brought against him by the Security and Exchange Commission (SEC) for $1.26 million in 2004. SEC had accused him of insider stock trading.

He also tangled with truck maker Freightliner, which sued Swift for $10 million in 2002, accusing the carrier of over-billing it for warranty work. A merger with truckload rival M.S. Carriers in 2000 was painful as well, forcing Swift to take charges against earnings in ensuing years to recoup losses from M.S.’s Mexican operations.

Despite those rough patches, Moyes still casts a huge shadow over Swift. He literally built it up from a one-truck operation with himself at the wheel hauling steel, cotton, and produce to a $2.8-billion truckload behemoth.

“It is never easy to step back from something you have built from the ground up,” he said in 2005 when he left his executive positions at the company. “He’s not satisfied yet,” Satish Jindel, president of SJ Consulting, told FleetOwner. “This is a company he created. He’s an entrepreneur that still sees a lot of potential in this company to grow in new directions. He wants to take it to a new level,” Jindel observed.

Jindel added that Morgan Stanley’s multi-billion backing means the bank thinks Moyes still has plenty of “magic” left to work that could help Swift expand in new directions.

“Swift has all the pieces in place to grow from its $3 billion size now to a $5 billion or $6 billion company,” Jindel noted “The [freight] market is there and [Swift’s] size is there – and the market is favorable to large national carriers now. Swift has the opportunity to become much larger – there’s a lot of [intermodal] container work out there right now, for example.”

However, there is a lot of “animosity” between Swift’s board and Moyes that must be overcome for a buyout to take place, according to Bear Sterns Analyst Ed Wolfe. “Efforts to thwart Moyes [from regaining control of Swift] over the past 18 months include: removing him as CEO, granting top officers golden parachutes, creating a special board excluding Moyes and adopting a poison pill,” said Wolfe in a recent transportation market conference call.

Still, he believes Moyes’ buyout plans are not dead yet. “Despite our sense that the board truly believes Moyes is the wrong person to run Swift, they also must realize that a material amount of Swift’s earnings power during 2006 came from year-over-year fuel [surcharges] and workers’ compensation benefits that are not likely repeatable in 2007 and that the truckload environment has weakened materially recently,” Wolfe said. “As a result, the company’s stock might not see $29 for a long period.”