Covenant Transport buys Star Transportation for $40 million

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Covenant Transport announced Thursday, Sept. 14, its acquisition of 100 percent of the outstanding stock of Star Transportation of Nashville, Tenn., for about $40 million in cash. Beth Franklin, Star’s chief executive officer, has agreed to consult with Covenant on transition issues for one year, and all stockholders have agreed not to compete with Covenant or Star. Jim Brower, a 20-year veteran of Star and its current president, along with his staff, will remain in place to run Star.

Star Transportation is a short- to medium-haul dry van regional truckload carrier based in Nashville, Tenn. Star operates primarily in the southeastern United States, with shipments concentrated from Texas across the Southeast to Virginia. The carrier generated $89.6 million in revenue and $7.1 million in net income for the 12 months ended June 30.

“For the past year, our management team has been internally focused, as we have implemented a business realignment and attempted to improve the operating results of each of our service offerings,” says David R. Parker, chairman, president and chief executive officer of Chattanooga, Tenn.-based Covenant. “Covenant is strongly committed to a significant regional presence because of the large freight volumes that move in regional lanes. When we became aware that Star was potentially available, we acted decisively and had the major terms agreed to within a couple of weeks.”

Covenant has reported net losses in its most recent quarterly financial statements, but Parker says the addition of Star to Covenant’s corporate group will allow it to jump-start the turnaround of its regional service offering. “As these changes are implemented over the next several months, we expect to see a combined regional operation larger in size than Covenant operated alone during the second quarter of 2006, but with about 450 unprofitable trucks removed from Covenant’s fleet and the addition of Star’s approximately 600 quite profitable trucks,” he says. “Based on Star’s historical operating ratio of about 90 percent, we expect a significant improvement in our regional operations in 2007.”

Star Transportation is expected to operate as a separate subsidiary. Covenant says it expects — much like it did following its 1998 acquisition of Southern Refrigerated Transport — to provide support in areas such as volume purchasing, finance and accounting, and cross-marketing. Integration of operations is not expected. In addition, Star’s management anticipates sharing best practices in regional operations with Covenant, which may assist Covenant in the turnaround of its own regional service offering.

“We are very pleased to welcome the entire Star team to the Covenant family,” Parker says. “We sought out Star because of their proven record of growth and profitability in regional markets, their talented management team led by Jim Brower, the quality and integrity of the founding family, and their reputation for safe, on-time customer service. Our comfort with the fit only increased because our former treasurer, David Hughes, had become Star’s chief financial officer during July.”