Knight and Swift Hookup a Win for Shareholders

Full-truckload shipping specialists

Overall, we consider the structure of the merger a positive development for shareholders of both firms, in part because of meaningful cost and revenue synergy opportunities. We expect to raise our fair value estimates in the ballpark of 10%-12% for Knight and 18%-22% for Swift. This reflects our initial take on the equity value of the combined entity, including most projected synergies and allocating incremental value according each firm’s stake. Our no-moat ratings for each firm remain unchanged.

While we didn’t anticipate a marriage between Knight and Swift, we think the transaction makes strategic sense and our initial take is that management’s anticipated $150 million of annual cost and revenue synergies in the years ahead is achievable. We assume it takes a bit longer to achieve that target (2020 versus 2019) given the likelihood of sluggish operating conditions persisting into the first half of 2018 or until the industry sees a healthier supply/demand balance as widespread electronic logging device adoption reduces capacity. Nonetheless, our confidence in management’s target stems from gradual truckload market improvement and the likelihood Knight will apply its best-in-class operating know-how and yield management to Swift’s truckload operations.

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