Wabash National shares rise on $360M acquisition
NEW YORK (AP) — Shares of Wabash National Corp. jumped Tuesday after the maker of truck trailers said it would diversify its business by purchasing liquid-transportation company Walker Group Holdings LLC for $360 million.
THE SPARK: Wabash National said the deal will help it offer new products to its customers and will immediately start adding to its profits.
Wabash makes the kind of heavy trailers that are used by freight haulers and semi-trucks. Walker makes trailers that can carry liquids like dairy products, chemicals or fuel.
The deal is subject to regulatory approval and is expected to close during the second quarter.
Privately held Walker Group is based in New Lisbon, Wis., and owned by Insight Equity Holdings LLC, a Dallas-based private equity firm.
Wabash, based in Lafayette, Ind., said it obtained financing from Morgan Stanley and Wells Fargo for up to $450 million to fund the deal and provide additional money.
BIG PICTURE: The deal will give Wabash National new sources of revenue and a business with fatter profit margins.
Wabash National's stock has been hurt in recent years as high fuel prices and weak economic growth have squeezed over-the-road freight haulers.
Last year, Wabash National posted net income of $15 million on revenue of $1.19 billion. That was better than the year before, when the company reported a net loss of $167.2 million on revenue of $640.4 million.
During its 2011 fiscal year, Walker Group Holdings generated net income of $28.2 million on revenue of $344 million.
THE ANALYSIS: Sterne Agee Group Inc. analyst Jeff Kauffman said that the deal could boost Wabash National's profits.
Kauffman said that Walker Group Holdings is a market leader in the liquid tanker business. Walker Group's adjusted profit margin before taxes and other factors was about 15 percent to 16 percent last year, he said in a note to clients Tuesday.
By contrast, Wabash National's profit margin before taxes and other factors is estimated to be 7.2 percent in 2012, Kauffman said.
Kauffman rated Wabash National a "Buy," with a target price of $16 per share.
THE SHARES: Shares of Wabash National jumped $1.25, or 12.8 percent, to $11.03 in afternoon trading.
That's still down from the stock's year-high of $11.99. Shares were trading above $11.50 last spring, but fell sharply over the summer as broader markets tumbled and fears of a recession grew.
The stock has climbed back from its lows over the last few months, more than doubling from its level of $4.22 per share in early October.
