Ryder System, suddenly finding itself the focus of a takeover effort by a private equity company, described the offer as “unsolicited.”
In a brief statement, the truck leasing, warehousing and dedicated transportation provider acknowledged it had received an “unsolicited indication of interest” from HG Vora Capital Management to acquire the shares it did not already own for $86 a share.
“Consistent with its fiduciary duties and in consultation with its financial and legal advisors, the Ryder Board of Directors will carefully review and evaluate the indication of interest to determine the course of action that it believes is in the best interest of the Company and its shareholders,” the statement said. There was no additional comment.
Companies that exceed 5% ownership of a company must file a 13D form with the Securities and Exchange Commission. A review of SEC filings on Ryder’s investor web page reveals no other 13D filings going back before 2017, which may confirm other reports that HG Vora Capital owned just under 5% of Ryder (NYSE: R), which would have allowed it to accumulate stock without an SEC filing.
In the 13D filed Friday, HG Vora said it owned 5,050,000 shares of the company, which it had acquired for about $396.8 million. That would be an average price of $78.58 a share.
According to the 13D filing, HG Vora’s share of the company is now 9.9%.
HG Vora also said it had signaled its interest to Ryder management in a letter sent to the company Friday.
According to the filing, the $86 per share offer represents a 24.8% premium to the 30-day trailing average of the stock and a 20.3% premium to the closing price of Ryder on Thursday.
Ryder stock surges, but settles below offer price
Ryder stock surged on the news, but it closed for the day below its intraday high and a few dollars less than the $86 offer price. After closing Thursday at $71.48, Ryder stock traded as high as $84.41. It closed at $83.69, up $12.21, a 17.08% increase.
Its 52-week high was $93.05, established Oct. 25. More recently, its 52-week low was set April 8 at $61.71, which means the closing price Thursday, before the jump created by the HG Vora filing, was higher than a month ago despite overall declines in equities markets.
A possible rationale for the takeover effort may have been signaled in a late April report published by Vertical Research Partners. In an analysis of the company after Ryder’s record-breaking first-quarter results, Vertical said it was “beginning to look at this company on a sum of the parts (SOTP) basis.”
It is often a problem for companies involved in activities that are somewhat related — in the case of Ryder, logistics and transportation — but where their parts operate in relatively separate fields, does the stock price reflect the value of the company if the various parts were sold off one by one?
Vertical said no. It said in the report that it could “generate valuations for Ryder of $150” on an SOTP basis.
Another analyst who asked not to be identified noted that with the XPO (NYSE: XPO) spinoff of GXO Logistics (NYSE: GXO), the warehousing operations at Ryder, which operate under Supply Chain Solutions (SCS), now have a peer in the public markets for purposes of comparison. (In a Wall Street-sponsored forum last year, GXO management commented that it was the only publicly traded company that was a pure-play contract logistics stock.)
With those numbers in hand, it may be that analysts like Vertical Research Partners and private equity firms like HG Vora can build a case that Ryder is undervalued on a sum-of-the-parts basis, aided by a comparison of SCS to GXO.
Overall, according to data provided by Barchart, Ryder’s price/book ratio is 1.36, its price/cash flow ratio is 1.63 and its price/sales ratio is 0.37. At GXO — which would only compare to SCS but not to all of Ryder — the stats are price/sales, 0.77; price/cash flow, 10.82; and price/book, 2.58.
Ryder’s other two units are Fleet Management Services (FMS), which is roughly 50% of the company and is the leasing part of the business for which Ryder is mostly known, and Dedicated Transport Services (DTS), which provides dedicated trucking services.
As the analyst noted, truckload carriers that have dedicated transportation units had always provided a benchmark for DTS comparison, and FMS had numerous equipment leasing peers for the same purpose. SCS did not have a public benchmark, but GXO is now providing it, he said.
In the quarter ending March 31, SCS had operating earnings before taxes of $34.2 million, up only 4% from the first quarter of 2021. Earnings before taxes as a percent of total SCS revenue was 3.1%, down from 4.7%. It turned in that performance even as revenue was rising 54% on a non-GAAP basis.
DTS had a similar figure for EBT as a percent of total division revenue: 3.6% in this year’s first quarter versus 6.1% a year ago. But at FMS, EBT as a percent of total division revenue was 16.2%, up from 4.7% a year earlier.
Stifel surprised by HG Vora’s offer
The website for HG Vora has nothing more than what amounts to a cover sheet. In an article on CNBC’s website from early 2021, HG Vora was described as “not an activist investor, but has shown to be active value investors when necessary. … It is an event-driven, value-oriented fund that was founded in 2009 by Parag Vora,” the CNBC article said.
The article discussed how HG Vora and the company that owns Office Depot, the ODP Corp. (NASDAQ: ODP), had come to an agreement on the future of the office supply company. It did not result in a takeover offer by HG Vora, and the 13D filed by Vora in connection with its activities did not mention the possibility of acquiring all the stock in ODP, unlike its 13D filing with Ryder.
In a brief note to investors, the Wall Street firm of Stifel said it was “surprised to see the offer” and did not expect other bidders to step up.
It also noted that inside ownership at Ryder is just 2.2%. The two biggest shareholders ahead of HG Vora now are Blackrock with 10.71% and Vanguard right behind at 10.56%.
Stifel said it had an $80 target price on the stock that for now it was keeping steady.