News of Amazon’s planned foray into the air express network broke on March 8 when Air Transport Services Group (ATSG) announced it would operate twenty 767 freighters on Amazon’s behalf out of its Wilmington, OH hub. The deal however, was not limited to planes, it also granted Amazon warrants exchangeable for ATSG shares. Details regarding these warrants were embedded within Schedule 13Gs both companies filed on March 18, bringing to light the timeline by which Amazon could acquire its first 9.9% stake in ATSG.
According to Amazon’s 13G, the first warrant for a 9.9% stake in ATSG could be exchanged as soon as May 13. The clause regarding the first 7,098,775 shares which equate to 9.9% of ATSG’s outstanding 63,888,980 common shares, would become exercisable on “the earlier to occur” of either July 8, 2016, or after ATSG’s first stockholder meeting. According to ATSG’s 2015 Annual Report, the first meeting will take place on May 12.
Given the recent surge in ATSG’s share price, Amazon’s stake could come at a steep discount. The warrants enable Amazon to purchase ATSG shares at $9.73/share, the closing price of ATSG common stock on February 9. ATSG’s stock price has already jumped 21.4% since the deal with Amazon was announced on March 8. Assuming the warrant came at no cost to Amazon, and that Amazon will actually pay cash for stake, the first 7,098,775 shares will cost only $69.07 million. At ATSG’s current stock price of $14.34 those same shares are worth $101.23 – a 47% jump in almost no time. Of course, Amazon does not yet own any part of ATSG, and the share price will undoubtedly fluctuate between now and the time the first warrant is exercised.
Moving beyond the first warrant, successive warrants become even more important because once Amazon crosses the 10% ownership threshold, they gain access to one seat on ATSG’s board. The timeline regarding future warrants is not yet clear. According to the 13G filed by Amazon, the additional warrants for the purchase of an additional 10% stake (12,810,629 shares) will become exchangeable “upon the achievement of certain commercial milestones.” Cargo Facts will continue to follow Amazon’s warrants as details emerge.
In the meantime, join us at Cargo Facts Asia 2016, where ATSG’s Chief Commercial Officer Rich Corrado will be speaking on a panel devoted to the impact of e-commerce on air freight. Cargo Facts Asia will take place in Hong Kong, 19 – 20 April. To register, or for more information, go to www.cargofactsasia.com.