TransForce secures trucking might with Contrans takeover
Montreal's TransForce takes over Ontario's Contrans Group for $495M
Canada's largest trucking company, TransForce Inc., is set to become a national powerhouse in the specialized trucking business with a proposed friendly takeover of Ontario-based Contrans Group.
Contrans provides bulk, tank, flatbed and other transportation services in Canada and parts of the United States.
It's expected to complement the various types of services provided by TransForce subsidiaries that are involved in package and courier deliveries, trucking and waste management.
"This is really the creation of a dominant player in Canada," said TransForce chairman and CEO Alain Bedard.
The Montreal-based trucking company announced late Thursday that it had struck a deal to acquire Contrans Group Inc. for $495 million in cash plus $85 million of debt. That imples Contrans has an enterprise value of $580 million.
In addition to the money from TransForce, Contrans shareholders would receive a special dividend of 40 cents per share, bringing the total amount that they receive to $15 per share. Funds for the special dividend would come from the recent sale of the Contrans waste transportation segment.
Contrans already lean
Bedard said he expects to realize at least $15 million cost savings, partially from eliminating Contrans costs as a public company and $10 million in operational savings, without resorting to layoffs among Contrans' 1,400 employees.
Unlike past acquisitions of underperforming companies, TransForce views Contrans as a "lean and mean machine" that doesn't require any changes that could scare away key employees.
"I'm buying the company in my mind at a huge price. (It's) fair, agreed, but it's a lot of dollars, lots of investment. So I'm not going to change the recipe," Bedard said during a conference call with analysts.
The deal was consummated after financial advisers for Contrans approached TransForce with a price, which the company accepted. It represents a 16.7 per cent premium to the 52-week volume weighted average trading price but only 5.1 per cent premium to the value of shares over 10 days before the deal was announced.
Most analysts believe Contrans shareholders will approve the transaction, which is expected to close in the fall. But Maxim Sytchev of Dundee Securities said some shareholders may ask for more.
Bedard said he has no plans to go higher, preferring to turn his sights on the United States if Contrans shareholders balk.
He said the combination will create a more efficient company that will be good for the Canadian truckload industry. Contrans is the largest specialty trucker in Ontario while TransForce is strong in Quebec.
"It's going to be to the benefit of everybody: our employees, our customers, our shareholders," he said in an interview. "Combining under our own family is fantastic for everybody."
TransForce has engaged financial advisers about the possibility of spinning off the enlarged truckload business as a separate public company. It would one of the largest in North America with $1.8 billion in annual sales and $250 million in EBITDA.
The company is also looking to unlock the value of its profitable waste management business.
Benoit Poirier of Desjardins Capital Markets said the further consolidation of the Canadian trucking markets should improve TransForce's pricing power. He estimated the acquisition could add 15 to 20 cents per share in earnings for TransForce over the long term, representing $2 to $3 per share in value to the company's stock price.