Chattanooga's biggest trucking company appears ready to settle a 4-year-old dispute with some of its shareholders over previous financial disclosures as the company prepares to merge later this year with an even bigger logistics giant.
U.S. Xpress Enterprises Inc. has agreed to pay $13 million to resolve a class action lawsuit from investors who claimed in a 2019 lawsuit that U.S. Xpress made "materially misleading" statements in its financial disclosures, including its 2018 public stock offering that raised nearly $250 million.
A federal judge in Chattanooga last month gave preliminary approval to the proposed class action settlement and has scheduled a hearing on the settlement for July 10. In an 11-page opinion, U.S. District Court Judge Travis McDonough said the $13 million settlement "is fair and reasonable when balanced against the probable outcome of further litigation relating to liability and damages issues."
The tentative settlement comes as Knight-Swift is planning to buy U.S. Xpress for $808 million, subject to final shareholder approval. The Phoenix-based Knight-Swift, one of the nation's biggest trucking companies, has offered to pay $6.15 per share for U.S. Xpress, or more than four times the price of what U.S. Xpress was trading for before the purchase agreement was announced March 21.
Knight-Swift is paying a premium above the previous market price for U.S. Xpress but still less than 40% of what U.S. Xpress stock was issued at in its 2018 offering when the company went public on the New York Stock Exchange for the second time in its 37-year history.
The lawsuit against U.S. Xpress alleges that company misrepresentations led to investor losses and caused shares of the company "to fall precipitously" from the initial public stock offering price of about $16 per share. The suit claims "driver safety initiatives were inadequate and lagged behind its peers, resulting in riskier drivers and a poorly maintained fleet," increasing "exposure to liability claims." The complaint against U.S. Xpress also claims company executives provided "highly misleading" information about shipping performance and failed to adequately disclose shipping pattern changes by Walmart, its largest customer.
The lawsuit charges that U.S. Xpress CEO Eric Fuller and Chief Financial Officer Eric Peterson "made a series of materially false and misleading statements in violation of the Exchange Act, which further artificially inflated and maintained USX's stock price."
In court documents filed in response to the charges, U.S. Xpress denied the lawsuit claims, "including any allegations of fault, negligence, liability, wrongdoing or damages whatsoever."
But the company said it entered into settlement talks to "eliminate the uncertainty, risk, costs and burdens inherent in any litigation." The settlement also should help clear the way for shareholder approval of the purchase of U.S. Xpress by Knight-Swift, which has already been endorsed by the boards of directors for both companies.
(READ MORE: U.S. Xpress cuts about 70 jobs in Chattanooga)
Based on 2022 results, U.S. Xpress is expected to add about $2.2 billion in operating revenue for Knight-Swift once the trucking merger is completed, including $1.8 billion in truckload revenue from 7,200 more tractors and 14,400 more trailers. After the transaction, Knight-Swift's consolidated revenue run-rate is expected to approach $10 billion, while the truckload fleet will have approximately 25,000 tractors and 93,000 trailers.
Despite the premium paid by Knight-Swift above the pre-purchase stock price for U.S. Xpress, Knight-Swift CEO Dave Jackson predicts the purchase of U.S. Xpress will help boost Knight-Swift earnings by calendar 2026.
"The opportunity to add one of the largest and most well-known brands in our industry, with a significant opportunity to improve earnings, gain customers and reach more professional drivers, was very compelling to us," Jackson said in the announcement of the purchase last month. "Although it will take time, particularly given the current freight environment, we would not have pursued the transaction unless we were confident in achieving our return thresholds within a few years."
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.