Montreal-based TFI is fueling speculation and boosting the stock of an American competitor on the NASDAQ.
The trucking company formerly called TransForce revealed late Monday that it has bought about a million shares of ArcBest, an Arkansas company that generates more than 50% of its revenue from the transport of lots broken.
It was enough to excite investors. ArcBest stock gained 17% on NASDAQ on Tuesday.
The 4% stake held by TFI was quietly inserted into a footnote detailing the year-end financial performance presented on Monday.
While some investors are betting that this is a precursor to an upcoming acquisition of ArcBest by TFI, others may see an indication that the American company is undervalued.
Questioned by analysts surrounding the disclosure of this investment, the big boss of TFI, Alain Bédard, answered in a conference call “very much to like” ArcBest.
“We would eventually like to have very positive discussions with the management team because being a unionized company ourselves like them, there are certain things that we could work on together and improve,” he said. .
Why reveal this investment this week? Alain Bédard simply said it was the “right thing to do”.
Alain Bédard says he is in talks with other companies in the sector about, for example, real estate assets held. “We have a large real estate portfolio, much of which is unused,” he said.
Alain Bédard did not indicate whether the participation in ArcBest would be increased or not and no details were provided on the structure that a cooperation agreement could imply. The investment would be intended to foster discussions with ArcBest on opportunities for efficiencies between the two companies.
However, experts suspect other scenarios.
“I’ve thought for a while that a transaction between ArcBest and TFI would make a lot of strategic sense,” said Jack Atkins, analyst at financial services firm Stephens.
“I know that TFI likes to acquire undervalued assets and ArcBest is significantly undervalued compared to other comparable companies. »
A buyer must be prepared to pay a generous premium to hope to buy ArcBest, according to Jack Atkins. He doesn’t believe ArcBest management wants to sell, unless TFI offers a price that’s hard to refuse. And he doubts that TFI has the desire to offer a price too high to refuse.
He believes that an offer of US$150 per share valuing ArcBest at US$3.6 billion would be fair (ArcBest’s stock is now worth around US$100). If the stock market is efficient, ArcBest’s stock will trade at US$150 a year from now, he said, when economic conditions improve and the new contract with the Teamsters is signed.
Jack Atkins also says he does not understand why the market still refuses to recognize the full value of ArcBest given its balance sheet, the quality of service and its profitability “despite a unionized workforce”.
His colleague Jason Seidl, of the firm Cowen, believes for his part that TFI will probably want to wait until ArcBest agrees with the Teamsters before committing to an acquisition project.
The current agreement with the Teamsters expires in June and Jack Atkins does not believe that this union organization would be in favor of a transaction with TFI because of the potential for job losses resulting from the integration of the activities of the two companies. .
However, there is no doubt in his mind that a transaction would be very beneficial for TFI shareholders.
It is even a “unique opportunity” in the eyes of analyst Benoit Poirier at Desjardins Securities. “It would be a perfect match for TFI and a great opportunity to create value. He calculates that such a transaction could create up to $40/share of value for TFI shareholders.
Fellow Fadi Chamoun of BMO, for his part, suspects that ArcBest has been on TFI’s short list for a long time and notes that the disclosure of the investment in ArcBest comes as TFI completes the integration of UPS Freight and after the Investor Day last November during which management highlighted having the ability to deploy up to $5 billion.
The combination of these two trucking companies would however be complex to achieve, according to Fadi Chamoun. “A more strategic cooperation in certain markets could perhaps bring the two parties closer together in a first step towards a broader eventual combination. »
Will there be a transaction? Time will tell, but ultimately, Jack Atkins thinks it unlikely, because too many stars have to align for it to work.
TFI shares closed Tuesday up 7% at $167.05 on the Toronto Stock Exchange.