Retirees who hold significant shares say acquisition is a merger that should require shareholder approval

GREENEVILLE, Tenn. (WJHL) — A Chancery Court Judge will take some time to review Wednesday’s court arguments before deciding whether Greeneville-based shipping company Forward Air must allow shareholders to vote on a planned major acquisition.

Several major shareholders, led by former Forward Air Chief Financial Officer Rodney Bell, filed a temporary restraining order two weeks ago to block Forward Air’s purchase of Omni, a Dallas-based company of roughly the same size.

That order expires Thursday, but Judge Doug Jenkins said he needed some time to review the arguments set forth Wednesday before making a decision about whether shareholders have a right to vote.

Forward Air, which split off from parent company Landair Transport in 1998, announced Aug. 10 it planned to buy Omni. Founded by Greeneville entrepreneur and philanthropist Scott Niswonger, Forward Air is a shipping company that provides trucking, less-than-full truckload services, so-called final mile services and intermodal shipping.

Lead plaintiffs’ attorney Tom Wright said that contrary to Forward Air management’s claims that the buyout of Omni is an acquisition — and therefore doesn’t require a shareholder vote — the nature of the deal points to it being a merger.

“You’re smart enough to see at the end of the day we’re going to have a merged company,” Wright told Third Judicial District Chancellor Doug Jenkins.

He also said the fact that Omni shareholders will be granted a 37% stake in the company will dilute the current shareholders’ share value.

Bell and other plaintiffs, he said, are “minority shareholders and they’re getting a deal shoved down their throats that they don’t agree with.”

Wright pointed to the fact that nearly two dozen subsidiaries are being created to get to the end result, and that taken as a whole, the process does in fact represent a merger.

“They’re trying to be cute to get around the shareholders’ fundamental right to vote,” Wright said.

Dave Marriott, an attorney with New York-based law firm Cravath, argued for Forward Air’s management and said the plaintiffs were seeking “extraordinary relief” that isn’t supported by Tennessee law.

Marriott addressed the plaintiffs’ arguments from both an original complaint and an amended one point by point. He said none of those arguments — including Wright’s repeated references to the creation of numerous subsidiaries that do in fact engage in mergers to reach the end result — meet the high standard.

“There has to be a clear showing of a violation of their right to vote,” Marriott said. “The fact is they have no right to vote.”

Marriott said that Forward Air is paying six figures of interest daily on debt it assumed to complete the deal (a total of about $1.9 billion) and that the plaintiffs’ effort “is going to impose a variety of injuries” to the company.

Wright, conversely, insisted Forward Air’s management is trying to get around an obligation to shareholders.

Judge Jenkins asked Marriott whether the multiple sub-companies and the mergers that they’ll engage in were structured to prevent shareholders from what should have been a right to vote. Marriott responded that “deals of this kind are done all the time,” and that the complexity of it centers around “the tax math,” meaning the parties can pay fewer taxes by structuring it this way.

Niswonger has expressed opposition to the plan and resigned from Forward Air’s board in protest of the plan Aug. 17. He told News Channel 11 Wednesday that the deal overleverages the company and will likely alienate many of its customers — who have been in competition with Omni.

A trade publication has also reported that investors have been skeptical about the deal and that existing Forward Air customers are leery of the vertical integration and think it will make it harder for them to compete.

After the hearing, Forward Air CEO Thomas Schmitt said the plan would be good for both employees and shareholders.

“Those employees here in Greeneville and the other employees, they work for us, Forward Air, today, they work for us tomorrow,” Schmitt said.

As to shareholders, he said “we are making this transaction because it’s the best possible thing we can do over the next several years for the shareholders. That’s the only obligation we have.”

He said the result of the acquisition would be “profitable growth. We’re a great operations company, Omni’s a great selling company and they’re selling the exact product that they’re the best of delivering. They’re very good at selling what we do well.”

He said if Jenkins rules in the company’s favor, the acquisition could be finalized within days. The wait for a ruling and the plaintiffs’ claims, “is causing us harm. It’s a delay that’s not good for the shareholders.”