MONTREAL, March 27 /CNW Telbec/ - 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 Bedard. "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. Bedard.
"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. Bedard. "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.
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 Bedard, 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.
Business Outlook
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 conference call on Friday, March 28, 2008 at 10:00 AM EST. To participate, please call (Toronto) 416 915 5761 or (Toll-Free) 800 732 0232. The conference call will also be recorded and available by calling (Toronto) 416 640 1917 or (Toll-Free) 877 289 8525 and entering passcode 21267622 followed by the (number sign)key.
A corporate presentation with further details is available at TransForce's website, www.transforce.ca.
Profile
TransForce Income Fund (www.transforce.ca) is the leader in Canada's transportation and logistics industry. Headquartered in Montreal, Quebec, the Fund's objective is to create value for unitholders through managing and investing in a growing network of wholly-owned, independent operating subsidiaries. TransForce provides a comprehensive and unique combination of capabilities, resources and geographical coverage in both domestic and trans-border markets. Its companies currently operate in five well-defined business segments:
- Less Than Truckload; - Package and Courier; - Specialized Services, which includes its ancillary transportation services such as logistics, warehousing & dedicated services, fleet management & personnel services; oilfield & oilsand services, and; waste management; - Specialized Truckload; and - Truckload. TransForce's trust units (TIF.UN) are listed on the Toronto Stock Exchange and are included in the S&P/TSX Composite Index.
Forward-Looking Statements
Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of TransForce. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for TransForce's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.
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