Shares of dry bulk shipper Knight Transportation (NYSE:KNX) are up 11.9% as of 11:30 a.m. EDT, and shares of (erstwhile) rival Swift Transportation (NYSE:SWFT) are doing even better -- up an astounding 23.6%.
What's all the fuss about? It's merger time at the truck stop, and Knight and Swift are becoming one single company. This morning, the two trucking titans announced "an all-stock transaction that will create the industry's largest full truckload company."
The merger is being structured as a reverse stock split, with each share of Swift being converted into 0.72 share (so the Swift share count will first decrease by about 28%), followed by all the new Swift shares, and all the existing Knight shares being traded in for new shares of Knight-Swift on a 1-for-1 basis. When all's said and done, this will result in Swift shareholders controlling about 54% of the stock in the new Knight-Swift, and Knight shareholders the remaining 46%. So, from one perspective, you could characterize the deal as an acquisition of Knight by Swift, although the companies are naming Knight as the "accounting acquirer."
Mathematically speaking, Swift's current shares are being valued at $22.07 apiece, and Knight's shares at $30.65, though both are trading above those levels now that the news has broken. Thus, in one fell swoop, by announcing this merger, the companies have increased the value of investors' shares in both their companies.
Should the shares be going up? Going forward, the combined Knight-Swift will boast 23,000 tractors, 77,000 trailers, and 28,000 employees to drive and service them. Combined, the new company will pull down $5 billion in annual revenue. It also expects to reap $15 million in "synergies" (cost savings) after the merger closes later this year, then save $100 million more in 2018, and $150 million more in 2019.
Thus, cost savings in 2018 alone should be more than Knight earned in all of last year, and 2019's savings should exceed what Swift earned last year. Assuming those savings pan out and drop to the bottom line, investors are probably right to be excited about this deal.