I tell people that TransForce is the new Smith Transport, but if you counted all the companies and all the divisions, TFI probably has a bigger proportionate presence than Smith did in its heyday, when it was the biggest trucking firm in the British Commonwealth. I’m pretty sure TransForce has had the Commonwealth title for some time, and with it’s expansionist tactics, it’s probably nosing up there with the big American giants.
Heck, doesn’t seem to be a month goes by when CEO Alain Bedard is buying up something else. In only a few short months he acquired QuikX, Dynamex, and Velocity Express. TFI already has a strong presence in the Canadian courier and packaging sector having finagled deals over the years to obtain ATS, ICS, CanPar and Loomis, and I’m probably missing a few. Often, though not always, TFI buys up companies that are under-valued or under-performing and provides efficiencies, sometimes taking some capacity out of the system and making the new acquisitions compete against each other, rather than consolidating them.
Bedard can’t seem to make a false move. The balance sheet is as robust as ever, and besides paying out dividends (13 cents per share quarterly), it’s also aggressively paying down the cost of acquiring those assets with record-setting revenues.
TFI has also been actively buying up bulk waste hauling businesses in eastern Ontario and Quebec creating more value for this division with each purchase, a case of the whole being worth more than the sum or its parts. One analyst has called TransForce’s waste business as a “gem” of an asset.
But to keep expanding at this rate, Bedard has had to look south. TransForce entered the US oil field business in 2011 after buying I.E. Miller Services, an oil field transport provider with eight terminals from North Dakota to Louisiana. In 2012 the Canadian trucking behemoth increased its presence by acquiring assets from Peak USA Energy Services of Texas, a similar oil field service company based in Texas.
Moving into the States is something new for this entity. The US can be a difficult market as many Canadian companies have learned. Some transport carriers have no interest in playing south of the border (Contrans, Mullen), but Trimac has been in the US for decades and has found a formula that works.
And then there’s Vitran. I like this company a lot but it has been struggling for some time. It seems like it’s got all the fundamentals in place, with an LTL presence across Canada and terminals in 30 plus States. Last year activist trader George Armoyan, the CEO of Clarke Inc. of Halifax, NS, bought up 6.2% of outstanding Vitran shares, and in October 2012 sent a letter to the board, “We are writing to express our view that the board of directors of the Company and the Company’s management have, in recent years, done a terrible job managing the Company’s operations and allocating shareholder capital.” Among Armoyan’s suggestion was that Vitran sell off its Supply Chain Operation and pay off some of its revolving debt.
Vitran leader Rick Gaetz responded by intimating that Armoyan has little knowledge of the US LTL business, and rebuffed Armoyan’s attempt to get a seat on the Vitran board. This Armoyan is an interesting character. Syrian-born he’s done well by taking large positions in under-performing companies including Clarke Transport, from the helm of which he’s done all this wheeling and dealing. For a time it seemed everything he touched turned to gold. The Globe and Mail even described the tycoon as Canada’s Warren Buffet.
The luster has disappeared, however. Armoyan originally made his money in real estate and then took a bath as the market collapsed in the early 90s. Recently he’s had some problems as CEO of Clarke Inc. with the share value taking a roller coaster ride. Back in 2007 CKI peaked at $11.00 and then crashed to around the $2.00 mark. Today’s TSX pegs CKI at $4.65.
TFI also got interested in Vitran last year and started buying up stock on the TSX and NYSE. Currently they have about 1.7 million shares, or about 10.75% of the company.
One can only speculate about Bedard’s interest in Vitran. Perhaps they were prompted by Armoyan throwing his hat in the ring. If Vitran can’t put it’s game together, TFI will be ready to pick up the pieces, which are well-placed and sound. If Vitran does show a profit, that’s a bonus too, and a win-win for TFI investors.
But lo and behold, didn’t the Vitran board heed Armoyan’s suggestion? Just a couple of days ago it announced that Legacy Supply Chain Solutions of New Hampshire has bought up its SCO division giving it a quick infusion of cash and a bounce in its stock price.
Did Transforce’s 10% position influence the board’s decision? Maybe. Maybe Clarke’s Armoyan had something to offer. Vitran’s stock price sits at about $7.50, having almost doubled in the last few months from its cellar at $4.00. No doubt, all the interest in this firm has caused investors to sit up and take notice.
Most Canadian trucking companies are privately or family-owned and not traded on the public market. I’m a big booster of Canadian companies, that’s why I bought BlackBerry shares at $16.00. But I’m a little more nervous when it comes to transportation equities. Nonetheless if you had bought shares in any of the publicly-traded companies back in 2009 when they bottomed out you would have tripled your investment today. But I think $22 or $23 is maybe too rich for TFI. I’ll have another look if they come down a bit. I like Mullen, too, but also a little rich for my blood at $23. But I think Contrans and Trimac are worth a look. They pay dividends, have a great track record and are accessible to a working stiff like me. I’m less sure about Vitran, but some analysts think it should be back in the $12 range in the near future.
Harry Rudolfs has worked as a dishwasher, apprentice mechanic, editor, trucker, foreign correspondent and taxi driver. He's written hundreds of articles for North American and European journals and newspapers, including features for the Ottawa Citizen, Toronto Life and CBC radio.
With over 30 years experience in the trucking industry he's hauled cars, steel, lumber, chemicals, auto parts and general freight as well as B-trains. He holds an honours BA in creative writing and humanities, summa cum laude. All posts by Harry Rudolfs