Unsolicited takeover of Ryder is unlikely to succeed, analyst says

An unsolicited offer made by a private equity firm to buy Ryder System Inc. undervalued the company’s true value, at a time when financial market concerns about an imminent end to the freight cycle have put downward pressure on transportation stocks, logistics sector analysts said.

New York-based HG Vora Capital, which already holds 9.9% of Ryder stock, on Friday offered to buy the remaining shares of the supply chain, dedicated transportation, and fleet management provider, Ryder has confirmed. At its current stock price, Ryder has a market capitalization of about $4.4 billion.

But that offer came in below the company’s true value, according to a letter to clients from the transportation industry analyst firm Baird Equity Research. “We view a near-term sale as unlikely unless takeout value rises meaningfully,” Baird Senior Research Analyst Garrett Holland said in the note. “We think the proposal undervalues the company based on its normalized earnings potential and would expect a larger premium and/or formal sale process to commence if the company chooses to explore strategic alternatives. Following challenges in the prior cycle, the [Ryder] team is now arguably executing better than ever.”

Despite market concerns about a downturn in the freight sector, Ryder’s management has made progress executing a strategy to deliver higher and less-volatile returns along with steady growth, Baird said. And looking ahead, “secular outsourcing tailwinds” should help sustain continued growth, especially because Ryder’s finances have positioned it well to weather the next downturn, Baird said.

However, Ryder said it will nevertheless review the offer. “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 company said in a release.

Slumping transportation sector metrics in recent weeks have splashed cold water on the red-hot logistics economy, which continued to grow in April but registered its most anemic expansion in 14 months, according to the latest Logistics Manger’s Index (LMI) report.

Despite that cooling effect, Ryder has been active in expanding its toolset lately, making investments in robotic process automation (RPA) technology, acquiring the omnichannel logistics service provider (LSP) Whiplash for $480 million, and buying a suite of 17 warehouses from Midwest Warehouse & Distribution System to bulk up its e-commerce capabilities.