Trucking industry magnate Jerry Moyes is back making a bid for troubled Central Freight Lines less than a month after stepping down as chairman and CEO of Swift Transportation.
Central announced Nov. 10 that Moyes has offered to buy out the two-thirds of the company he does not already own, a transaction valued at $28 million. Moyes and other investors acquired the Waco, Tex.-based LTL carrier in 1997 from Viking Freight Lines. It is hovering near bankruptcy, having lost money for the past year.
Moyes, who stepped down as Central chairman in May, made an offer of $2.25 a share to take the publicly traded company private. That price represents a small premium over the $2.02 closing price of Central's stock before the offer, but a sharp step down from its 12-month high of $7.50.
Central has named board members Porter Hall and Cam Carruth, the former head of USF, to a special committee to evaluate the Moyes proposal. The deal is subject to reaching a definitive agreement and would have to be approved by the company's board and stockholders.
Analysts said that with Central holding just $400,000 in the bank at the close of the third quarter, shareholders will be hard pressed to turn down an offer from Moyes, who also owns or controls large amounts of Central's real estate.
"Our sense is that [Central] is desperate for a cash infusion at this point and, absent another buyer emerging, will likely be forced to accept Mr. Moyes' offer," said investment firm Bear Stearns. "At this point, given that most of the real estate and assets are owned or controlled by Mr. Moyes, we don't see an obvious bidder emerging."
"The company is not dead; it is in intensive care," said Satish Jindel, president of SJ Consulting Group. "It stands a better chance of coming out of it with one doctor in charge and not six."
At the same time as the Moyes announcement, Central filed a third-quarter report with the Securities and Exchange Commission revealing that the company's deepening troubles. Central lost $13.4 million in the quarter, nearly double the $7.9 million it lost in the year-ago period. Revenue fell 4.3 percent to $94.3 million, even as business across most of the LTL sector grew. Central lost $27.8 million in the first nine months of the year.
"We have experienced recurring negative cash flows attributable primarily to operating losses," the company said. "As a result of such negative cash flows and losses, there is a substantial doubt about our ability to continue as a going concern."
On Nov. 9, Central said it obtained an amendment to its credit line with Bank of America allowing it to increase its borrowing capacity by $5 million. Prior to the amendment, it was restricted from drawing on the last $15 million available unless it met certain financial targets; it now is restricted from the final $10 million.
Moyes owns 31.5 percent of Central in addition to the roughly 40-percent stake he has in Swift, a company he founded in 1966 and now the nation's largest publicly traded truckload carrier. In October, weeks after settling insider trading charges brought by the SEC for transactions he made with Swift, Moyes stepped down as chairman and CEO. The move, while previously announced, came two months earlier than expected.
Bear Stearns suspected that Moyes was forced out before his time. "We believe that Mr. Moyes' replacement as [Swift] chairman and immediate removal as an officer was board-directed and against Mr. Moyes' wishes," the firm said.
Whether a Moyes-led Central can recover from its financial predicament is an open question. In his absence, "management is aggressively pursuing all aspects" of a previously announced turnaround plan, including boosting revenue, reducing costs, streamlining freight movements and improving employee efficiency, the company said.
"We believe the transaction proposal ? demonstrates Jerry Moyes' continuing support for Central, as well as his confidence in Central's future," Central President and CEO Bob Fasso said.