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June 25, 2012 7:45 AM, EDT

Arkansas Best Pays $180 Million to Acquire Panther Expedited

By Jonathan S. Reiskin, Associate News Editor

This story appears in the June 25 print edition of Transport Topics. Click here to subscribe today.

Two of the nation’s largest trucking companies have joined forces, as Arkansas Best Corp. paid $180 million to acquire Panther Expedited Services in the largest acquisition in North American trucking so far this year.

The parent of less-than-truckload carrier ABF Freight System, Arkansas Best completed the deal June 15, buying Panther to expand its transportation offerings from private equity firm Fenway Partners, which had owned the carrier since 2005.

Arkansas Best ranks No. 14 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada, while Panther is No. 97. Together they would rank No. 11.

“We have expressed publicly that for us to fully reach our overall goal to maximize value for our shareholders, we have to explore new profit opportunities,” Arkansas Best CEO Judy McReynolds told analysts during a June 14 conference call. “Cutting costs alone will not get us where we want to be, while at the same time recognizing the need to return our core LTL business to sustained profitability, we started a process to diversify the company in 2008 and have worked closely with outside advisers to identify and analyze many opportunities to help us do that.”

Before choosing Panther — which ABF has used as a transportation provider since October 2006 — Arkansas Best evaluated more than 100 acquisition targets, a company spokesman said.

The two companies have very different business models. ABF uses Teamsters union labor to operate company-owned trucks. Panther has a staff of more than 1,000 owner-operators, who often work as team drivers running “hotshot” vehicles, unitized Classes 7 or 8 sleeper trucks with 22-foot vans.

Teamsters spokesman David White said the union does not have a position on the acquisition.

While both companies offer expedited transportation, ABF moves typical LTL loads, often between 500 and 2,500 pounds, said David Humphrey, vice president of investor relations for Arkansas Best.

With each hotshot truck dedicated solely to one customer per shipment, Panther can more easily transport larger shipments than typical LTL freight loads.

The companies also provide non-asset-based transportation services, such as freight brokerage and forwarding, and transportation management.

Panther is now the second-largest subsidiary of Arkansas Best, Fort Smith, Ark., behind ABF. Other subsidiaries are maintenance management firm FleetNet America, broker FreightValue Inc., household goods manager Albert Cos. and Data-Tronics Corp., which provides information technology.

Panther, Seville, Ohio, was founded in 1992 by Craig Amato and Dan Sokolowski. A Panther spokesman said Amato left the company at the time of the Fenway purchase, but Sokolowski remained as chairman until June 15.

Panther filed registration statements with the Securities and Exchange Commission — a prelude to an initial public offering — in June 2006 and again in August 2010, only to withdraw both later without going public.

Arkansas Best described the $180 million payment as a multiple of 7.6 times Panther’s 2011 adjusted cash flow (earnings before interest, taxes, depreciation and amortization).

For the 12 months ended March 31, Arkansas Best had revenue of $1.91 billion but net income of $805,000, or 3 cents per share.

Panther’s revenue for 2011 was $215 million, with no figures given for net or operating income. Adjusted cash flow was $23.7 million.

Analyst Arthur Hatfield told clients of Raymond James & Associates after the deal was announced, “While we believe the combination will provide additional avenues for growth and opportunities for cross-selling, we continue to look for a turnaround in the company’s core LTL operations.”

McReynolds said in the conference call that Panther will be run as a sister company to ABF, within the holding company structure of Arkansas Best. Humphrey said Arkansas Best wants Panther CEO Andrew Clarke to remain in charge of Panther on a long-term basis.

McReynolds said she has analyzed how her company’s LTL customers have changed over time.

“The average LTL shipper today is more sophisticated. They are no longer a manufacturer shipping an LTL size shipment from their U.S. manufacturing site to a U.S. customer,” she said.

“Today’s typical LTL shipper is now assembling and sourcing products from overseas, and it needs to be transported from Asia to a West Coast port, and it needs it to be

distributed in truckload qualities from the West Coast port city, and potentially needs it warehoused in various parts of the country, and in some cases, needs it to be distributed in a timely and sometimes expedited manner to the delivery point and so on,” McReynolds said.

The components of the transaction are $80 million in cash and a five-year $100 million loan syndicated by three banks: U.S. Bank, BB&T Co. and PNC Bank. Arkansas Best assumes none of Panther’s debt, which must be repaid by Fenway.

Panther’s largest competitors are FedEx Custom Critical, Forward Air and Towne Air Freight, all members of the TT 100. ABF is the fifth-largest LTL.

The last merger within the TT 100 was in July 2011, when CRST International acquired Specialized Transportation Inc.