Per the agreement, each share of Swift Transportation will be converted into 0.72 shares of Knight-Swift through a reverse stock split. Each share of Knight will be exchanged for one share of Knight-Swift. The deal values each share of Swift at $22.07, which represents a 10.2% premium to Friday’s closing price.
Swift shareholders will own 54.0% of the combined company, leaving Knight shareholders with the remaining 46.0%.
The combined company is expected to generate $5 billion in annual revenue and will have a top 5 truckload presence in services like dry van, refrigerated, dedicated, cross-border, brokerage, and intermodal. Headquarters will remain in Phoenix, AZ.
The transaction is expected to be accretive to adjusted earnings per share with pre-tax synergies of $15 million in the second half of 2017. The amount is expected to grow to $100 million in 2018 and $150 million in 2019.
The Swift-Knight merger comes just days after the IPO of SchneiderNational (SNDR 19.00, 0.00), who was the largest privately-held for-hire trucking company prior to going public. Last Thursday, Schneider National opened for trading at $19.50 after the IPO priced at $19.00, which was the midpoint of the expected range.
In addition to announcing their merger, both companies adjusted their guidance for the first two quarters of the fiscal year. Knight Transportation expects first quarter earnings between $0.16 and $0.18 per share, down from previous guidance for earnings between $0.24 and $0.27 per share. For the second quarter, the company expects earnings between $0.24 and $0.27 per share after previous guidance called for earnings between $0.27 and $0.30 per share. Seasonal weakness in January and February contributed to the reduced guidance.
As for Swift, the company expects first quarter earnings between $0.11 and $0.12 per share, which is just below current market expectations. Second quarter earnings are expected between $0.18 and $0.23 per share, which is also shy of analysts’ estimates. Lower than expected freight volumes were responsible for the cautious outlook.