Western Express Inc. and Smithway Motor Xpress Corp., two truckload carriers that haul diversified freight nationwide, announced on Friday, March 23, agreement on a plan for Western to acquire Smithway for $90 million. Also, Smithway announced its financial and operating results for the fourth quarter and year ended Dec. 31, 2006.
Under the acquisition agreement approved by the board of directors for both companies, the stockholders of Smithway will receive $10.63 in cash for each share of Smithway for a total equity value of about $54 million and a total enterprise value, including Smithway’s existing debt, of about $90 million. The transaction — which is structured as a merger, whereby Smithway will become a wholly-owned subsidiary of Western — is expected to close in the summer of 2007, subject to approval by Smithway’s stockholders and other customary closing conditions.
The acquisition is expected to build upon Western’s established dry van operation by combining the dry van operations of both companies. Additionally, Smithway’s flatbed operation is expected to offer Western the market presence and reputation to make the combined flatbed operation a force in the industry. On a combined basis, the companies would operate about 1,600 tractors in dry van operations and 1,400 tractors in flatbed operations. Smithway’s experienced senior management team and employees are expected to remain at Smithway and play integral roles in delivering the companies’ combined services to the truckload market.
“Western is very excited by the prospect of adding Smithway’s operations to our existing business,” says Wayne Wise, chairman, president and chief executive officer of Nashville, Tenn.-based Western. “Western has a history of growing through strategic acquisitions, and the acquisition of Smithway would be the next chapter in Western’s growth story.”
Wise says the combination of the two companies would place Western in the top 15 truckload carriers measured by revenue, creating more opportunity for its combined customer, employee and driver bases. “Besides the many obvious synergies between the two companies’ dry van and flatbed operations, the Smithway people were key to our interest in a transaction,” he says. “We are always looking for strong performers, and we look forward to working with the existing management team as they continue to manage and grow their business from their existing locations.”
“Our board of directors is pleased with the terms of this transaction, which it believes provides great value to Smithway’s stockholders,” says G. Larry Owens, president and chief executive officer of Fort Dodge, Iowa-based Smithway. “The addition of Smithway’s fleet and truckload transportation services brings tremendous value to Western, creating an even stronger company in the truckload market. By joining our complementary services, the combined company gives the Smithway business operations the right platform from which to achieve their full potential. In addition, our employees will benefit by being part of a larger, more diversified organization.”
Smithway’s financial results
For the quarter, Smithway experienced a net loss of $42,000 compared to net earnings of $755,000 for the same quarter in 2005. The fourth quarter included an expense of $1.5 million, or $948,000, net of the resulting tax benefit, for an uninsured loss plus legal expenses relating to the settlement of litigation. Excluding the expense for this uninsured loss, net earnings for the quarter were $906,000, an improvement of 20.0 percent as compared to the same quarter in 2005. For the year ended Dec. 31, 2006, net earnings were $4.3 million compared to $4.2 million in 2005. The year ended Dec. 31, 2006 also included the $948,000 expense for an uninsured loss described above. Excluding the expense for this uninsured loss, net earnings for 2006 were $5.2 million, an improvement of 23.3 percent from 2005.
For the fourth quarter of 2006, operating revenue decreased about 11.7 percent to $51.2 million from $58.0 million for the corresponding quarter in 2005. Operating revenue, excluding fuel surcharge revenue of $7.3 million, decreased about 9.3 percent to $43.8 million from $48.3 million, excluding fuel surcharge revenue of $9.7 million, for the corresponding quarter in 2005. For the year, operating revenue increased about 3.8 to $228.8 million from $220.4 million in 2005. Operating revenue, excluding fuel surcharge revenue of $36.1 million, increased about 0.9 percent to $192.7 million from $191.0 million, excluding fuel surcharge revenue of $29.4 million, in 2005.
“Our fourth quarter results were achieved in a difficult operating environment, including continued high fuel costs, increased labor costs and some softening of demand,” Owens says. “Despite these conditions, as a result of careful expense control, our net earnings improved after adjusting for the one-time expense we experienced as a result of an uninsured loss associated with the settlement of a lawsuit.”
Owens says many of Smithway’s operating statistics show improvement for the year, including revenue per mile and fleet size. “We are one of the few companies providing an environment to increase our independent contractor fleet, which grew once again this year,” he says. “We are proud of our fourth-quarter and year-end results, which were achieved during a time of challenging conditions in our industry. We continually work to contain costs and improve our operations so that we can positively impact future earnings. While we have experienced softness in our core truckload markets during January and February of 2007, we have witnessed improvement in March.”