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Ryder rejects HG Vora’s takeover offer

Management says company can meet higher valuations with current strategy

Photo: Jim Allen/FreightWaves

Ryder System has rejected the takeover bid by an activist shareholder group, according to a transcript of an investors meeting. 

“One thing I wanted to do before I get started is I do want to address and give you an update on the letter that we received on May 13 from HG Vora,” Ryder (NYSE: R) CEO Robert Sanchez said Friday. “I spoke to Mr. Vora late yesterday and I informed that the board had reviewed his letter and had determined that the price indicated in his letter was not indicative of the value of our company. So our board remains committed to maximizing shareholder value and believes that the plan that we have going forward would result in a much higher value for our shareholders.” 

A summary of the meeting published Monday by Vertical Partners said “Ryder [made] the case that the company can achieve higher valuations on its current path.”

The statement made by Sanchez Friday was the first public comment about the bid by HG Vora since Ryder confirmed its existence. While the price of Ryder stock did surge above the $86 offer price on May 13, the day the offer was announced, it recently dropped below $80 per share. Soon after the market’s opening Monday, Ryder was trading at $82.76, up about 1.4% from Friday’s close.

At the time of its 13D filing, HG Vora said it owned about 9.9% of Ryder.

At publication time, HG Vora had not responded to an email request for comment by FreightWaves. 

In its note to investors, Vertical Partners said its valuation of Ryder on a “sum of the parts” basis  puts Ryder stock at $150 per share. Vertical Partners bases its view in part on the valuations of the Dedicated Transportation Services and Supply Chain Solutions divisions, which together constitute a little less than 50% of the total business, with the better-known leasing business constituting the balance. Some analysts have said the sum of the parts valuation of Ryder puts correct numbers on DTS and SCS, which the street value of the company’s stock is missing. 

“While [the $150 price] feels excessive in the current environment, that is where the peer group multiples go for the DTS and SCS divisions,” Vertical Partners said in its note. “We believe we may have to get to the other side of a pending economic slowdown to get investors to pay attention to that kind of valuation work.”

Before the investors meeting Friday, Ryder put out a revised forecast for the second quarter and full-year 2022. In that forecast, Ryder said it had increased its second-quarter outlook for the company to earnings per share of $4.37 to $4.62 on a GAAP basis. That estimate had been $3.50 to $3.75. The company earned $3.35 in the first quarter. 

For the full year, Ryder’s GAAP EPS estimate was increased to $13.23-$14.23 from $12.83-$13.83. 

Given that forecast, Vertical Partners worked back to projected EBITDA for the company and said that while the $150 might be excessive for now, “a more appropriate valuation multiple on the company’s fundamentals at EBITDA multiples between 4.0x-5.0x warrants valuations over $100.”

In a report on the investors event presentation, Todd Fowler of KeyBank said Ryder’s estimated increase in earnings was supported by a “benefit of maintenance initiatives” and stronger margins in new leases. About 60% of the company’s lease book remains to be repriced, he said. 

Ryder told the investors that in the SCS and DTS divisions, “continued growth and normalized margins … are expected to contribute an additional $1.20 per share, while aiding mix and returns immediately,” Fowler said.

Fowler said KeyBank remains “incrementally constructive” on Ryder in part because of “ongoing efforts to shift mix to higher return supply chain and dedicated offerings.” KeyBank kept its rating  at Sector Weight.

In its report, Vertical Partners said Ryder had reviewed plans to have “more modest fleet growth over the next cycle with a focus on straight truck diversification versus tractors.”

“We believe Ryder overgrew last cycle and spent too heavily on new equipment, which was under-depreciated and underpriced as a result,” the note authored by analyst Jeff Kauffman said. 

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.