In the wake of Manitoulin's announced agreement to acquire Vitran at a cost of US$6 per share, TransForce will now have to decide whether to sell its shares for a tidy $4 million profit, stay put, or up its offer.
Manitoulin's offer of $6 per share represented a 10.3% premium over its price at the close of trading yesterday.
In his analysis of the deal, David Newman, director of institutional equity research, transportation and industrial products with Cormark Securities, said there are still synergies that could be realized from a TransForce acquisition of Vitran.
Newman estimated the multiple paid by Manitoulin to be as low as 3.6x EBITDA, "assuming that Manitoulin can monetize the real estate of (Vitran) against the current debt to realize the equity value. That said, the corporate costs lowers the posted EBITDA, increasing the multiple paid".
Newman noted that five of Vitran's terminals have associated real estate credit facilities.
"While Vitran has around 23 terminals, we consider the real footprint to be around 18 terminals," Newman said. "Vitran owns key terminals in Toronto, Montreal, Winnipeg, Edmonton and several other Canadian cities."
So now the question becomes, according to Newman, "Would TransForce step up and offer a higher bid for Vitran? We believe it is possible, although not necessarily a great deal more than the current offer tabled by Manitoulin."
TransForce offered to purchase all of Vitran's outstanding shares for US$4.50 on Sept. 25.
"TFI has the ability to pay up for VTN and make a higher bid, in our view, and still be accretive, especially given its 19.95% interest in the Company was accumulated at lower levels," Newman said. "Alternatively, TFI can walk away from the deal. It currently holds ~19.95% of VTN or ~3.27 (million) shares, and could pocket upwards of $4M as a result of Manitoulin's acquisition of VTN."
Newman said TransForce could come back with a higher offer, but may not have the appetite to do so if it becomes overly expensive.
"We believe the TFI-Vitran merger could result in strong synergies, given a strong coast-to-coast overlap between their LTL operations in Canada," Newman said. "The initial synergies could be in the realm of several million and perhaps rise from there as the geographic overlap of their combined operations is rationalized and consolidated, thereby increasing utilization. A more rationalized Canadian LTL market could lead to improvedpricing and margins."