Activist investor continues to keep the pressure on Forward Air over board seats

The hedge fund group of Cleveland-based Ancora Holdings Inc. is continuing to turn up the heat on Greenville, Tenn.- based asset-light freight and logistics services provider Forward Air, following its launch of a proxy fight, focusing on getting four directors added to the Forward Air Board of Directors.

In an open letter to Forward Air shareholders, Ancora Holdings Chairman and CEO Frederick DiSanto explained that Ancora remains highly disappointed by the operating performance at Forward Air, as recent results and guidance continue to underwhelm.

“In our view, there continues to be a clear lack of operating discipline at the management level as well as ineffective oversight from the Board of Directors (the “Board”),” wrote DiSanto. “We believe recent results further confirm our stated view that a revamped strategy underpinned by a refreshed Board and strengthened management team is paramount to enhancing value for all shareholders. Further, we felt compelled to set the record straight regarding Forward Air’s mischaracterization of our prior discussions in its public response to our director nominations.”

As previously reported, in a wide-ranging open letter to Forward Air shareholders written by DiSanto last week, Ancora presented its case for the four directors it intends to nominate to stand for election at the Forward Air 2021 Annual Meeting of Shareholders. The nominees include: Scott M. Niswonger, Forward Air’s founder; Andrew C. Clarke, former Forward Air CFO, shareholder representative James Chadwick of Ancora, and Dawn Garibaldi, an executive leadership specialist.     

Ancora officials said that Ancora Holdings Inc. and the other participants in the solicitation own roughly 6.3% of outstanding Forward Air’s outstanding shares.

In the letter, Ancora explained that the Forward Air Board of Directors “must be significantly reconstituted to address the Company’s prolonged stock price and operating underperformance, which Ancora believes has been largely driven by the Board’s poor operational oversight, ineffective capital allocation strategy and failure to optimize the Company’s balance sheet.”

What’s more, it added that going back over the past decade, the growth through acquisition strategy Forward Air has taken, which have focused on new service offerings, have been what it described as margin and return dilutive to its core business. And it also observed that further hindering things was that the focus on acquisitions diverted management and the Board from effectively operating Forward Air’s core expedited LTL business, which has seen a decline of more than 1,000 basis points in operating margins.

Over the period of these acquisitions, Ancora said that Forward Air spent around $975 million on acquisitions and capex, with its return on invested capital declining from roughly 30% to 15%, which has led to the company being what Ancora called a convoluted story for investors.

Ancora added that it remains open to reaching an amicable resolution with the Forward., which comes with a caveat.

“However, we feel compelled to set the record straight following the Company’s mischaracterization of our settlement discussions,” it said. “More troubling to us than the inaccuracies in its characterization of events is the fact that the Company seemingly fails to appreciate that any acceptable settlement would have to address the Company’s performance issues and the need to strengthen senior management.”

But Forward Air explained in a statement it had a different perspective, noting that believes the company is on the right path to deliver sustainable growth for shareholders, adding that the company is open-minded and receptive to ideas that may enhance value or its operations.

“To that end, members of the Board and management team have held numerous and extensive discussions with Ancora and members of its shareholder group, including Andrew Clarke and Scott Niswonger (collectively the “Ancora Group”), over the past several months to better understand its views on the Company’s strategy and progress,” it said. “Through these discussions, the Board determined that it is either already executing on—or intends to undertake—many of the initiatives suggested by Ancora. In the areas where the parties disagree, the Board and management believe we can create superior value under the Forward strategic plan currently being executed.”

In its fourth quarter earnings announcement on February 11, Forward Air reported quarterly operating revenue of $350 million, for a 9.6% annual increase, and net income from continuing operations down 32.2%, to $15 million.