The Board of Directors of Heartland Express, Inc. (“Heartland”) has announced that it has acquired 100% of the stock of Gordon Trucking, Inc. of Pacific, Washington (“GTI”) and certain associated assets in transactions valued at approximately $300 million. With combined total revenue of approximately $1 billion and a terminal network spanning from Washington to Florida and from Pennsylvania to Southern California, Heartland estimates the combined companies will operate the fifth largest asset-based truckload fleet in North America. Steve and Scott Gordon have joined Heartland’s management team. Larry and Virginia Gordon will retire after 50 years of building GTI, and Larry Gordon has joined Heartland’s Board of Directors. The transactions are expected to be immediately accretive to Heartland’s earnings per share, excluding transaction-related expenses.
• Total transactions value at closing of approximately $300 million consisting of cash, Heartland stock, and assumed GTI debt, before taking into account approximately $60 million in net present value of expected future cash tax savings attributable to a Section 338(h)(10) tax election.
• Total transactions valued at closing, on a debt-free, cash-free basis, at approximately 5.0x adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”) for the twelve months ended September 30, 2013 (“LTM”) (approximately 4.0x LTM Adjusted EBITDA considering net present value of expected future cash tax savings).
Adjusted EBITDA is a non-GAAP financial measure.
• Earn-out of up to $20 million strongly aligned with goal of approximately $30 million in consolidated adjusted operating income improvements through 2017.
• GTI’s West Coast-centered operations and terminal network dramatically increase Heartland’s size, geographic coverage, and customer
• GTI’s customer service, safety, and driver focus are similar to Heartland’s.
Description of Transaction
Heartland acquired 100% of the outstanding voting and non-voting stock of GTI and certain associated assets. At closing, the transactions were valued at approximately $300 million before taking into account the net present value of future cash tax savings, the potential earn-out, and any post-closing working capital adjustment. Heartland expects to use approximately $165 million of its cash reserves and expects to have approximately $95 million in outstanding debt after the transaction and repayment of assumed GTI debt.
The consideration at closing included approximately $150 million in assumed or refinanced GTI debt and $150 million paid to the stockholders of GTI and associated asset owners. Payments to stockholders of GTI and associated asset owners were approximately $110 million in cash and approximately $40 million in Heartland’s common stock. The allocation was approximately $14 million for voting stock,$121 million for non-voting stock, and $15 million for associated assets. The Gordon family has agreed to retain a substantial portion of its Heartland stock through 2017 to align the family’s interests with the interests of Heartland’s other stockholders.
GTI was an S corporation for federal tax purposes and passed through most of its income tax attributes to its stockholders. The transaction included an election under Internal Revenue Code Section 338(h)(10), under which Heartland will acquire tax basis of approximately $191 million relating to revenue equipment and other fixed assets. The balance of the transaction value, after adjustments, will be allocated to intangible assets. Future tax deductions associated with the increase in tax basis and deductible intangible assets are expected to generate cash tax savings with a net present value of approximately $60 million (discounted at 6%). The actual cash savings will depend on the final purchase price allocation, the amount and timing of future taxable income and deductions, any earn-out achieved, escrow releases, changes in law, and other factors.