Forward Air Corporation has seemingly lost its way in the fallout of its controversial acquisition of fellow logistics services provider Omni Logistics, and an activist investor may be looking to force action to reshape the new company.
Irenic Capital Management has built a stake of nearly 5 percent in Forward Air, according to a report from the Wall Street Journal. The move could signal another set of changes to a company that already saw its pre-acquisition CEO Tom Schmitt leave the position in February.
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According to the WSJ, Irenic privately sent a letter to Forward Air’s directors this month calling for a board shakeup and a strategic review to consider a range of options including a sale.
This is the second time since late 2023 where an activist investor sought changes at the company, when Ancora Holdings called for Forward Air to replace Schmitt and some of its board members. Ancora later led a similar effort at Norfolk Southern.
In late April, Forward Air hired a new CEO, Shawn Stewart, to replace Schmitt. Stewart’s pedigree includes leading Ceva Logistics’ North America division from April 2020 to March 2024, where he headed a team that generated $5 billion in sales.
Now, the financial direction of the company is still up in the air.
Forward Air’s chief financial officer, Rebecca Garbrick, said she was stepping down from the company on May 20, less than two weeks after a rough earnings report which saw the company incur net losses of $88.8 million in its first quarter.
An ongoing weak freight market including excess carrier capacity and pressure on pricing brought revenue per shipment excluding fuel up just 0.7 percent over the same period last year. The company’s intermodal and truckload brokerage services saw an 8 percent decline in revenues and a 41 percent decline in adjusted EBITDA in the quarter.
If there was at least one positive for Forward Air in the quarter, it was that it doesn’t seem it has lost customers or salespeople in the wake of the Omni deal, which was valued at $2.1 billion upon closing. This was a concern during the back-and-forth when both Forward and Omni Logistics were engaged in dueling lawsuits over the future of the acquisition, with some customers were worried that the former would essentially be acquiring a competitor.
“I’m pleased to report that the answers on customer attrition and salespeople attrition is still positive,” said Michael Hance, the interim CEO of Forward Air prior to Stewart’s appointment, during the May 8 earnings call. “We have not seen customer attrition.”
Stewart followed up Hance’s message by indicating that he wants to spend “a large majority” of his time personally involved with customers.
“I will segment my time over this next quarter to split those time capsules, if you will, between direct interaction with customers, and with the sales team to ensure that we continue to give that confidence and listening to understanding what solutions we can bring to their supply chain throughout this combined network,” Stewart said.
The WSJ report said Irenic also told Forward Air that it believes several private equity firms would be interested in acquiring the company at a substantial premium to its current share price.
Another investment company, private equity firm Clearlake Capital, recently disclosed a 13.8 percent stake in Forward Air earlier this month, making it the company’s second-largest shareholder after BlackRock.
Since Aug. 10, 2023, when the announcement to acquire Omni Logistics was first made, the logistics services company’s stock has plummeted nearly 84 percent. Set at $16.78 per share as of 3 p.m. Thursday, the stock hit levels unseen since 2003 at $12.25 per share on May 22.
Credit rating agencies aren’t confident in Forward Air’s recent performance, with both Moody’s and Fitch Ratings downgrading the company’s debt rating. Moody’s also changed its outlook for Forward Air from “stable” to “negative.”
“The ratings downgrade and negative outlook reflect Moody’s view that Forward Air’s credit metrics will remain weaker than previously expected through 2025,” said Moody’s in its research note. The higher than anticipated leverage is due to a combination of the significant increase in debt related to the acquisition of Omni and the sustained softness in the freight transportation industry.”
While Fitch downgraded Forward’s default rating, it was at least more lenient on the outlook, switching it from “negative” to “stable.”
The drama regarding the Omni acquisition itself still hasn’t concluded. In May, a former employee and a pension fund teaming up to file a class-action lawsuit in Tennessee court to rule the logistics provider was required to give them a vote before it could execute the merger.
Forward has contended the deal didn’t necessitate a shareholder vote as it represented less than a 20 percent shift in voting control at closing. However, the investors say the company didn’t meet any of the exceptions to the voting requirement as stipulated per Tennessee law—where Forward Air is headquartered.
