Key USAK action dates – Set 1
- 10/27/2013 – GeoInvesting Begins Initial Research
- 11/15/2013 – Added to GeoInvesting Longs/GeoBargain Portfolio at $14.15
- 01/12/2015 – Removed From GeoInvesting Longs Portfolio at $27.88 A 107.79% increase
Key USAK action dates – Set 2
- 08/08/2021 – USAK Brought Back On Our Radar By Geo Contributor Egor Romanyuk at $13.85
- 02/2/2022 – Egor Romanyuk Closes His Position At $29.09 A 110% Increase
- 06/24/2022 – USAK Is Acquired By Schenker, Inc. $31.72/sh.
USA Trucking’s Long Road To Acquisition
Usa Truck, Inc. (NASDAQ:USAK), is a truckload carrier in the United States, Mexico, and Canada. The company operates through two segments, Trucking and USAT Logistics.
We first brought USAK to our Premium Members in 2013, after we pieced together multiple pieces of Information Arbitrage and realized that USA Trucking might have been a prime candidate for an eventual acquisition. In case you are not familiar with the term Information arbitrage, or InfArb as we like to call it, it exists when:
“a disconnect between stock prices and available public information on a company is noticeable and monetarily worth pursuing. Sometimes, the mispricing of micro-caps can be substantial. This strategy has “paid dividends” for many investors. Part of the reason the “InfoArb” opportunity exists is that investors often incorrectly label ALL microcap stocks as pump & dump schemes promoting companies with no revenues and profits.”
InfoArb Clue One: Offer Already Rejected
Knight-Swift Transportation Hol (NYSE:KNX) published a presentation that we interpreted as a trashing of USAK. We viewed this as a classic ploy to keep the stock down so that Knight could try to acquire the company at a lower price. We believed Knight would have to raise its offer significantly to have a chance of acquiring USAK.
InfoArb Clue Two: 13D/G Filing Analysis – Activist Investor Gets Involved
In September 2013, a 13G filing and two November Form 4 filings showed that Stone House Capital Management acquired 1,343,830 shares of USAK, representing a 13.0% ownership interest. Interestingly, Stone House’s Form 4 showed that it purchased shares on November 14, 2013 at a price of $13.56.
On November 7, 2013, Baker Street Capital also filed a 13D where it disclosed that it owned 1,400,000 shares, or 13.3%. Specifically, Baker purchased its shares in two blocks:
- 751,277 at $13.00 on October 8, 2013.
- 648,723 at $12.85 on November 6, 2013.
Combined, Baker Street and Stone House thereafter owned 2,705,000 shares, or around 26% of USAK. Essentially, Knight would have needed Baker Street’s blessing to acquire USAK.
The fact that Baker Street and Stone House purchased shares near USAK’s 52-week high, and at much higher prices than Knight’s bid, led us to believe Baker Street also felt that Knight’s bid was too low.
InfoArb Clue Three: Understanding the 13D vs. 13G
Baker Street made sure to file a 13D, as opposed to a 13G, regarding its ownership stake in USAK. Thus, we think Baker Street would lead a charge to maximize value for USAK shareholders. A 13G is filed when an investor intends to be a passive owner in a company. However, a 13D is filed when an investor wants to leave the door open for taking an active role in defining the direction of the company, including the possibility of exerting control.
InfoArb Clue Four: Who is Baker Street?
Baker Street is:
“…a value-focused investment firm founded in 2009 by Vadim Perelman and based in Los Angeles.”
Baker had a knack for making large bets in special situation plays, and winning big. In fact, one of its past investments was in AutoInfo (old symbol AUTO), a company similar to USAK that also participated in the trucking industry. In November 2011, Baker disclosed that it bought a 9.1% position in AUTO at a price of $0.55. On March 1, 2013 the company was acquired by Comvest Partners for a $1.05, or 90% premium over cost.
InfoArb Clue Five: USAK Turnaround in Full Throttle
USAK hired its new CEO John Simone on February 18, 2013. He had 30 years of operational and management experience in the transportation industry and had worked for companies such as UPS, Ryder, and Greatwide Logistics.
InfoArb Clue Six: Knight Needs USAK
A USAK investor presentation (Slide 20) filed in October 2013 highlighted that Knight might want to acquire USA Truck, which it viewed as a hostile situation:
- Knight’s growth had stagnated.
- Needed to reinvigorate Knight’s stock price during a slow-growth period.
- Acquire USAK drivers to solve the driver shortage problem.
- Buy USAK market and route strengths east of Great Plains.
- Knight recognized USAK’s progress before the market fully reflected the true value.
InfoArb Clue Seven: Now That Activist Investors Are Involved, There Is Little Chance That Knight Will Get the Votes To Steal USAK At $9.00
In the words of USAK management from the October 2013 Investor Presentation:
- Knight opportunistically timed its proposal to capture significant shareholder value creation that rightly belongs to USA Truck’s stockholders.
- Offer fails to reflect rapid progress being made under the new and expanded management team.
- Offer does not reflect strong prospects for earnings growth.
- USA Truck’s board remains open to all strategic options that reflect the full intrinsic value of the company, including further discussions with Knight.
In the end, USAK was clearly worth more in a turnaround situation than Knight was giving it credit for. We believed a potential suitor could pay much more than where USAK was currently trading at and still have it be monetarily accretive.
On January 12, 2015 we announced that we sold our long position in USAK and uncoded it as a GeoBargain at $27.88, which was within our takeover price target range, t of $25 to $40 that was based on earnings power and EV/sales scenarios
USAK shares had risen strongly as investors speculated that lower oil prices would benefit the company’s results. At the time, we had exposure to several other oil related plays and wanted to lock in profits.
Egor Romanyuk And His Trucking Trifecta
Egor’s experience and knowledge in the trucking industry has been leading him on a path to find what he feels to be some of the better transportation-focused companies. He has brought GeoInvesting’s Premium Subscribers 3 different contributor picks since 2019, boasting an average peak return of 237.12%.
In his first conversation with Maj in April 2021, Egor explained why he invests heavily in transportation companies, capitalizing on a true “buy what you know” philosophy preached by our favorite investors, Peter Lynch.
When Maj caught up with Egor on August 6, 2021, he primed his pitch with a few small reasons why USAK was in his crosshairs:
- “So USA Truck – The reason why I like it. It’s super illiquid. When there’s good news, it moves up. I did a lot of research on it and like it for all the fundamental reasons.
- The trucking industry is very hot right now. I’m sure you’ve seen pictures of all the container ships that are stuck at LA ports, trying to get in.
- The trade deficit for the U.S., I think it’s at record levels. So there’s a lot of stuff being imported into the country.
- The retail sentiment is high right now. So there’s a lot of freight to be moved around. And trucking companies or a lot of trucking companies are capitalizing on that.”
USAK was officially added to our Research Contributors Model Portfolio on September 27, 2021 at $15.78.
Part of what we loved about Egor’s pitch was that he conveyed what he thought the fair value of USAK to be:
“So there’s all this freight that needs to be moved at all these high prices, but there’s nobody to drive them. Right. So even there, they got hurt. And even then they came out with a record quarter. I think once like Darren Hawkins of YELL said on the transcript -, as soon as all these American workers get off the bench and get back into work, then I think it’s just gonna blow up and it’s gonna blow up the most in the industrial sector.”
“I mean, trucking is just, it’s gonna go huge, it’s gonna affect the rates, it’s probably going to bring them down, because there’s so much more supply of trucks, when you have all these drivers. But, you know, the way prices work in the world regarding whatever it is, they rarely have a tendency to go down. Once you get the prices up, you’re very likely to just keep them there where they are”
“So that’s the short pitch. I think it’s very undervalued. I think at simple multiples in the industry, we’re looking at probably a $250 million market cap fair price. So we’re talking about double the price of the stock now. So I think it’s fair, that it will be 30 bucks a share, and it’s going to get there. The float is actually quite small. The float is, I think, only 2 million shares.”
On February 27, 2022 Egor officially announced that he had closed his position in Usa Truck, Inc., after the stock’s price climbed to a peak price of $29.09 during his coverage period, or an increase of 110%.
We would like to note that on April 27, 2002, Egor announced via Twitter that he was re-opening his long position in USAK.
On June 24, 2022 USAKs journey to acquisition finally came to a close. Usa Truck, Inc. (NASDAQ:USAK) was acquired at $31.72/sh, a huge premium of 126% over prior day’s closing price of $14.02. A big congratulations is due to our members who held on from the beginning of our coverage.
As Maj says, we won’t be betting against Egor or his batting average, which is a baseball perfect score of 1,000%, and the reason why we love our GeoInvesting Contributors.
Stay tuned for his next pitch coming soon.