News / Forward Air-Omni Logistics 'marriage' looks rocky after legal ruling

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It’s never a promising sign of looming marital bliss when prospective partners communicate via public statements ahead of the wedding.

The spluttering merger agreement between Forward Air and Omni Logistics, to create a $3.8bn transport and logistics company, took another turn off the road when Forward’s management announced on Thursday that it was contemplating calling off the merger – one day after a court had given it the green light.

Forward claimed Omni had failed to comply with certain obligations of the merger agreement, namely “pre-closing access to information”, confidentiality and financing sections of the deal. Consequently, “Forward does not regard itself as obliged to move ahead with the takeover”, it told the media.

Omni responded in kind with a statement to the effect that it had “fully complied with all the required provisions” and that any suggestion by Forward to the contrary was “unfounded”. It expressed firm determination to push ahead with the transaction.

For Omni’s board this makes sense. The way the deal is structured, Forward will pay $150m in cash and cover the rest of the $3.2bn takeover sum through debt and equity, which will give Omni 38% of the voting rights of the amalgamated company as well as four seats on the board and company president position.

Forward shareholders, led by activist investor Ancora Holdings Group, opposed the deal, balking at the 38% equity position for Omni stakeholders and the hefty increase in debt to $1.85bn.

They challenged the agreement in court, arguing that shareholder rights were violated because they were not allowed to vote on the merger deal. Should this lawsuit succeed, Ancora would be looking to call for a shareholder meeting to replace the board, along with chairman and CEO Tom Schmitt, it said at the time.

The Tennessee court where the hearing was held, ruled last Wednesday that the agreement did not violate shareholder rights, and it dissolved a temporary restraining order on the merger. However, the following day, Forward signalled its reservations and issued its claim that Omni had violated the agreement.

The change of stance has reconciled the Forward board with Ancora. Ancora chairman and CEO Frederick DiSanto said: “Given that the proposed transaction has faced legal challenges and overwhelming market opposition, the board of directors is right to be diligent in holding Omni accountable for any and all non-compliance with the agreement’s terms.

“We urge the board to take whatever steps are needed to protect the long-term interests of the enterprise, while restoring and preserving shareholder value. In our view, terminating the prospective transaction with Omni is a logical and necessary step at this point in time.”

However, this may be easier said than done. It is up to Forward to prove that Omni failed to live up to its obligations. As Elon Musk discovered when he attempted to backtrack on his commitment to buy Twitter, the company would be forced to proceed with the takeover if it could not convince a court that Omni was at fault. Moreover, litigation would be costly.

At this point it is not clear what evidence Forward can produce to convince a court of its accusation against Omni. It would seem the decision to structure the merger agreement in a way that precludes a shareholder vote on the issue could come back to bite the board.

Shareholders, already dissatisfied with the prospect of a merger, will be furious with management for manoeuvering itself into a corner with no escape route.

In addition, there are concerns that forwarders which have used Forward to move urgent airfreight consignments to and from airports, will jettison the company and look to other truckers because of worries that the merger would turn what was a transport provider into a direct competitor to them.

One forwarder executive said his firm was “absolutely against” the merger, and would “do everything to use Forward Air less”.