Canadian trucking company TFI International Inc. (TFII-T) is buying a key freight business from United Parcel Service (UPS-N) for US$800-million, its biggest acquisition as it punches into the top ranks of North American transportation carriers.
Shares of TFI soared 32 per cent to close at $86.08 in trading on the Toronto Stock Exchange on Monday. The company now has a market capitalization topping $8-billion.
Montreal-based TFI said in a statement it signed a definitive agreement to buy UPS Freight, the “less-than-truckload” and dedicated truckload divisions of UPS. The business being bought generated about US$3-billion in revenue last year but barely broke even on the basis of operating income, which TFI considers an opportunity.
“I’ve been trying to convince UPS to get rid of the asset because this is like a rock in their shoe,” TFI chairman and chief executive officer Alain Bédard said in an interview, adding UPS Freight never received the attention it deserved from its parent company given its focus on global package delivery. “This deal didn’t take me two weeks or two months. I’ve been working on that for more than two years.”
Mr. Bédard is building out TFI and consolidating the road cargo transport market, turning what was a regional player into Canada’s biggest trucking company. The transporter has acquired 90 companies over the past 12 years and now controls more than 80 operating subsidiaries big and small, including names such as Canpar Express, Loomis Express and Transport America.
“There’s very few companies that are making acquisitions at the same cadence as TFI,” said Peter Stefanovich, managing partner of supply chain mergers and acquisitions advisers Left Lane Associates. “Their goal is going to be growth in the United States: bigger market, bigger population, less exposure to [Canada’s] Competition Bureau, friendlier business atmosphere for a company their size.”
TFI was the 11th largest for-hire carrier in North America by revenue at the end of 2020, behind giants such as UPS Inc., FedEx Corp. and XPO Logistics, according to data from industry publication Transport Topics. This deal will likely vault it into the top five, Mr. Stefanovich said.
Less-than-truckload, or LTL, transport means shipments that don’t require a full flatbed trailer and are typically carried on pallets. Dedicated truckload shipments, which typically involve time-sensitive merchandise and items that are at high risk of damage, refers to cargo that has its own dedicated truck trailer.
The boards of the two companies have approved the transaction, which is expected to close by the end of June. About 90 per cent of the acquired business will operate independently within TFI’s existing less-than-truckload unit under the new name TForce Freight, TFI said.
Last September, TFI bought R.R. Donnelley & Sons business unit DLS Worldwide for US$225-million during a particularly active acquisition period. That deal was a way for TFI to get its feet wet in LTL in the United States and pick up experience with a view to buying a large LTL trucking company. That acquisition has materialized now, five months later.
Richmond, Va.-based UPS Freight is one of the biggest LTL companies in the United States, with a network of 6,340 trucks, 197 terminals and 14,500 employees. Its customer list includes blue-chip companies such as Honda, Best Buy and Home Depot.
Under the deal, TForce Freight will continue to serve UPS’s LTL distribution needs and UPS will continue to provide freight volumes and other services to TForce Freight for at least five years. “You don’t have to have the asset to have the service,” Mr. Bédard said he told UPS.
TFI said it will fund the acquisition with credit and cash on hand. The base enterprise value of the transaction is US$800-million on a cash-free, debt-free basis before adjustments. UPS will retain responsibility for all of the preclosing pension obligations, taxes and workers’ compensation liability claims, as well as costs related to the business it is selling, the company said.
The deal will be immediately accretive to diluted earnings per share and operating cash flow, TFI said. The company said it expects to be able to achieve significant improvements in TForce Freight’s margins, and plans to make targeted investments in its LTL fleet in the first 12 months in a bid to lower costs and improve operating efficiency and safety.
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