It’s been a wild December for shareholders of Long Beach logistics firm UTi Worldwide Inc.
Over the past two weeks, shares rocketed up 18 percent on news of a possible buyout, only to crash-land and lose all that gain after the company dismissed chances of a deal, then announced its chief executive had resigned and reported dismal earnings for its most recent quarter.
Bad news has been almost routine for the company, whose main business is brokering freight shipments. Sales have declined, profits have suffered, employees and customers have left and debt has ballooned over several years as UTi underwent a massive and expensive computer integration effort.
So when news emerged this month of UTi’s possible sale, analysts following the company got excited and stock prices jumped. But once talks stalled, analysts and investors suspected that potential buyer DSV A/S, a Danish trucking company and freight-forwarder, didn’t like what it saw when it looked in depth at UTi’s operations.
UTi’s own board members might have felt the same way, said Kevin Sterling, who follows the company as an analyst for BB&T Capital Markets in Richmond, Va.
Sterling said the company had lost credibility with bankers, investors and analysts on Wall Street, and that UTi’s board likely wanted a change, leading to Eric Kirchner’s resignation as chief executive Dec. 9.
“Clearly, the two parties were not seeing eye to eye,” Sterling said. “We believe the board was seeking a fresh start.”
Kirchner was replaced by Edward Feitzinger, who has been with the company since 2010, most recently as an executive vice president.
Past year
UTi stock prices have fallen nearly 32 percent over the last 12 months. In December of last year, prices reached as high as $17.61.
But shares plummeted 30 percent in a single day in February when the company announced that it was on the verge of defaulting on $200 million in debt. If not paid in time, that debt could have doubled, possibly forcing the company to shut down. Shares fell again after the company announced a refinancing plan that saved the company but was dilutive for shareholders.
Those problems likely contributed to Kirchner’s exit, analysts said.
“CEOs are paid to create shareholder wealth, not destroy it,” said Donald Broughton, who follows UTi as a senior transportation analyst with Avondale Partners in St. Louis.
What’s more, UTi’s sales continued to fall and losses widened throughout the year. That poor performance and the mounting costs of UTi’s software overhaul – which has now reached at least $10 million – as well as the steady loss of customers and employees all pushed the company to look for a buyer, Sterling said.
“They lost customers; there were service issues; they lost people, and through all that it’s lead to this downward spiral,” he said, leaving investors hoping for a sale.
New Chief Executive Feitzinger reported during UTi’s recent earnings call that the company is set to begin realizing the long-promised cost savings of its new technology – which is finally in place.
That news and improving air freight volume hints that the UTi’s operations are heading in the right direction, Sterling said, but he remains skeptical and wants to see sustained growth before feeling confident about the company.
Matthew Young, an analyst with Morningstar Inc. in Chicago, also said UTi continues to generate uncertainty, but that the company’s new software should make it more efficient.
Hopes for sale
Despite UTi’s poor performance, which analysts said likely scuttled recent talk of a sale, the idea of a deal for UTi might not be dead – even to DSV.
Analyst Broughton said the fact that UTi is floundering makes it more compelling to established freight-forwarders – such as DSV – looking to buy out the competition.
DSV, already firmly established in Europe, has 26 offices in the United States, including one in El Segundo. It just opened locations in Arizona and Oklahoma City.
Flemming Ole Nielsen, DSV’s director of investor relations, wouldn’t comment on why talks stalled between his company and UTi, but told the Business Journal that DSV is shopping for acquisitions – and is still interested in UTi.
“Our main priority is freight-forwarding companies with high exposure to global air and sea freight, and furthermore we would like to increase our geographical footprint outside of Europe,” Ole Nielsen said. ”Based on these criteria, we see UTi Worldwide as an interesting match with DSV – both in terms of geography and activities.”
UTi executives told analysts on the company’s recent earnings call that they wouldn’t answer questions relating to the possible sale and declined to answer subsequent questions on whether they were continuing to pursue a deal.
Sterling speculated that when DSV looked deeply into UTi’s operations, it saw that it would have to do some rebuilding of the company, but that those concerns could be overcome if it can get a good deal.
“That doesn’t mean DSV won’t come back,” he said. “Everybody has a price.”