TransForce Announces Proposed Conversion to a Growth-Oriented, Dividend-Paying Corporation
Investor Conference Call and Webcast on Friday, March 28, 2008 at 10:00 AM ET
Montreal, March 27, 2008 — TransForce Income Fund (TSX: TIF.UN) (“TransForce” or the
“Fund”), the leader in the Canadian transportation and logistics industry, today announced its
intention to convert from an income fund to a growth-oriented corporation (the “Reorganization”).
The decision follows a review of financing alternatives by the Board of Trustees of TransForce, as
announced on February 28.
“TransForce remains fully committed to pursuing its growth strategy and continuing to lead the
consolidation of our industry. The flexibility of the corporate structure is better suited to achieving
our goals, given developments in the income fund sector,” said TransForce Chairman, President and
CEO Alain Bédard. “We will be asking unitholders to approve the Reorganization at our annual
meeting in May”
Background and Benefits of the Reorganization
The Fund investigated a number of restructuring alternatives subsequent to the announcement by
the federal Minister of Finance on October 31, 2006 regarding specified investment flow-through
trusts (“SIFTs”) and the clarification updates that were provided on December 15, 2006, as well as
December 21, 2006 draft legislation. The government's announcements resulted in management
and the Board of TransForce conducting a review of the long-term strategic direction of the Fund.
They have determined that, as a trust, it would be increasingly difficult for TransForce to meet its
strategic objectives given: the higher cost of capital as a result of the new SIFT rules; a decline in
investor interest for trusts, which increasingly limits access to equity capital as 2011 approaches;
and limited financial flexibility due to TransForce’s commitment as an income trust to distribute a
large portion of its cash flow to unitholders. Additionally, the Board and management of TransForce
believe that the value of TransForce’s distribution payments is not being properly reflected in the
price of its trust units in comparison to other Canadian income funds.
Following the Reorganization, TransForce plans to reinvest a significant portion of its cash flow in
order to continue its disciplined consolidation of the transportation industry, as it has done for more
than 10 years. The Canadian transportation industry remains highly fragmented, with more than
70% of industry revenues of $55-billion generated by carriers with less than $25 million in annual
revenues, according to Statistics Canada. Additionally, the current operating environment provides
numerous attractive acquisition opportunities which TransForce believes can create significant value
for its securityholders. In addition to reinvesting its cash flow in growth opportunities, TransForce
may also use its excess free cash flow to reduce leverage over time and return capital to
shareholders through dividends and share repurchases under a normal course issuer bid.
“TransForce significantly benefited from its conversion from a corporation to an income trust in
2002. Since then, we have almost quadrupled our revenue to more than $2 billion (pro forma) and
we have successfully diversified our operations both geographically and across complementary
operating segments. This was achieved in large part through our successful acquisition strategy, as
we completed more than 75 acquisitions totaling revenue in excess of $1.0 billion over the period.
Additionally, we have created value for our unitholders by distributing approximately $8.00 per
unit, and have raised distributions 10 times”, said Mr. Bédard.
“While we believe we must continue our successful consolidation strategy, our cost of capital and
access to equity capital markets have deteriorated following the Minister of Finance’s announcement
on SIFTs, making the funding of our growth as a trust more difficult. Because we remain committed
to growth and see numerous attractive opportunities in the current market, we strongly believe that
the most suitable way to pursue our acquisition strategy and create value for our securityholders is
to retain a greater portion of our significant free cash flows, to better support and fund our
disciplined acquisition program and other growth opportunities in the new tax environment,” added
Mr. Bédard. “The transportation market remains highly fragmented and we are in advanced
discussions regarding a number of highly strategic and complementary acquisition opportunities
totaling more than $100 million, in a number of our operating segments. These acquisitions could
be realized in the short term.”
Mechanics of the Reorganization
It is contemplated that the Reorganization will be completed pursuant to a plan of arrangement.
Holders of trust units of the Fund will exchange their trust units for common shares of a new
corporation, to be called “TransForce Inc.”, on a one-for-one basis. Holders of “tracking shares” of
TFI Holdings Inc., an affiliated corporation, will exchange their shares for common shares of the
new corporation on the same one-for-one basis. This will result in approximately 86.8 million
common shares of TransForce Inc. being issued and outstanding after giving effect to the
Reorganization. TransForce Inc. will apply to the Toronto Stock Exchange for the listing of its
common shares and the Fund will seek the delisting of its units from the TSX upon completion of
The Reorganization is subject to receipt of all required court and regulatory approvals and approval
by at least 66 2/3% of the votes cast by securityholders of the Fund (unitholders and holders of
special voting units voting together as a single class) and by at least 66 2/3% of the votes cast by
shareholders of TFI Holdings Inc.
TransForce expects that an annual and special meeting of the Fund and a special meeting of TFI
Holdings Inc. at which the Reorganization will be considered will be held on May 12, 2008, and that
a management proxy circular statement will be mailed to unitholders of the Fund and shareholders
of TFI Holdings Inc. in early April.
Alain Bédard, Jolina Capital Inc. and trustees of TransForce, holding in the aggregate more than
20% of TransForce’s outstanding units, have indicated that they will sign support agreements with
TransForce under which they will agree to vote in favour of the Reorganization.
Recommendation of the Board
The Board of Directors has unanimously concluded that the Reorganization is in the best interests of
TransForce and its securityholders, and has unanimously resolved to recommend that TransForce
securityholders vote their trust units and special voting units in favour of the Reorganization.
National Bank Financial Inc. and RBC Capital Markets are acting as financial advisors to TransForce
with respect to the Reorganization. They have provided opinions to the Board of Trustees that, as at
the date hereof, the consideration to be received by TransForce securityholders in connection with
the Reorganization is fair from a financial point of view.
The current economic and operating environment remains challenging as Canadian and U.S.
markets adjust to the significant changes in currency values and a slowdown in manufacturing
activity. While management see the marketplace remaining challenging for the balance of 2008,
TransForce benefits from its leadership position and diversification across geographic and operating segments.
In 2007, pro forma EBITDA and EPS as a corporation (adjusted to include the full contribution of
already-announced acquisitions) would have been approximately $280 million and $0.83,
respectively. Based on current business conditions, management expects EBITDA in 2008 to be in
line with 2007 pro forma EBITDA.
Furthermore, TransForce is considering various alternatives and is currently in discussions regarding
increased financial flexibility and availability of credit facilities, all of which is consistent with the
continuation of TransForce’s acquisition strategy following the Reorganization.
Dividend Policy & Notice of Distribution
Following completion of the Reorganization, TransForce intends to establish a dividend policy under
which it will declare annual dividends of $0.40 per share, to be paid quarterly. The first dividend is
expected to be announced on September 30, 2008.
The Fund also announces that the cash distribution for the month of April will be $0.1325 per unit,
to be paid on May 15, 2008 to all unitholders of record as of April 30, 2008. Additionally, if the
Reorganization is approved, the Fund expects to pay a final cash distribution of $0.06625 per unit
for the period from May 1 to May 15, 2008, to be paid on June 13, 2008 to all unitholders of record
as of May 15, 2008.
Investor Conference Call and Webcast
TransForce will hold a presentation webcast and conference call on Friday, March 28, 2008 at
10:00 AM ET. The webcast can be accessed by visiting http://www.transforcecompany.com/ or
http://www.newswire.ca/. To participate in the conference call, please call 416-915-5761 or
1-800-732-0232. The conference call will also be recorded and available by calling 416-640-1917
or 1-877-289-8525 and entering passcode 21267622 followed by the # key.