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Knight-Swift (KNX) to Acquire U.S. Xpress for $808 Million

Knight-Swift Transportation Holdings KNX has inked a deal to acquire U.S. Xpress Enterprises USX to make a major development in the trucking space.

The total enterprise value of this deal, excluding transaction costs, is approximately $808 million. This includes Knight-Swift assuming USX's outstanding debt and finance leases of $484 million apart from purchasing outstanding equity for $324 million, or $6.15 per share. The offer price represents a huge premium over USX’s closing price of $1.50 on Mar 20.

The transaction, unanimously approved by the board of directors of Knight-Swift and a Special Committee of the independent directors of U.S. Xpress’ board, is anticipated to close either in late second-quarter or early third-quarter 2023. The closure is, however, subject to customary closing conditions.USX will delist from the NYSE post closure.

The deal, following closure, is likely to be accretive to Knight-Swift’s adjusted earnings per share from 2024. Management is targeting an adjusted operating ratio (operating expenses as a % of revenues) in high 80s by 2026 apart from generating mid-teens return on invested capital for the consolidated U.S. Xpress business unit. A portion of KNX’s unrestricted cash and available liquidity of $1.3 billion at 2022-end will be used to fund the deal.

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On materialization of the deal, KNX’s total operating revenues are likely to be boosted by $2.2 billion (including $1.8 billion in truckload revenues). Moreover, 7,200 tractors and 14,400 trailers are expected to be added, thereby expanding KNX’s truckload fleet significantly, which is likely to consist of roughly 25,000 tractors and 93,000 trailers. KNX’s consolidated revenue run-rate is anticipated to approach $10 billion post-closure.

To minimize disruptions for the driving associates, employees and customers, U.S. Xpress will continue to maintain its own brand and separate operations. The current senior management team of USX will remain intact through the transition process prior to the deal closure. Post closure, Swift executives Tim Harrington and Josh Smith will join U.S. Xpress as president and CFO, respectively.

Zacks Rank & Key Picks

Currently, both Knight-Swift and U.S. Xpress Enterprises carry a Zacks Rank #4 (Sell).Some better-ranked stocks for investors interested in the Zacks Transportation sector are:

Alaska Air Group ALK, being aided by the improved air-travel-demand situation, reported better-than-expected fourth-quarter 2022 results. The company expects a 29-32% increase in the top line in first-quarter 2023.

ALK has been increasing its capacity to meet the upbeat demand. Capacity is expected to increase 11-14% in the first quarter of 2023.

The Zacks Consensus Estimate for Alaska Air's current-year earnings has been revised upward by 7.5% in the past 60 days. ALK currently has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

United Airlines UAL, currently carrying a Zacks Rank of 2, is seeing steady recovery in domestic and leisure air-travel demand. On the back of upbeat air-travel demand, the stock was profitable in fourth-quarter 2022, which was the third consecutive profitable quarter at UAL.

Driven by solid demand, management expects total revenue per available seat mile to grow 22-23% year over year for the first quarter of 2023. Total revenues are anticipated to grow almost 51% year over year. The Zacks Consensus Estimate for current-year earnings has been revised upward by more than 7% in the past 60 days.

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United Airlines Holdings Inc (UAL) : Free Stock Analysis Report

Knight-Swift Transportation Holdings Inc. (KNX) : Free Stock Analysis Report

Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report

U.S. Xpress Enterprises, Inc. (USX) : Free Stock Analysis Report

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