Packages are moved down a line waiting for loading into trucks in an image provided by TransForce.
You just knew this one wasn't going to go down without a hitch. On Aug. 12 trucking company TransForce Inc. unveiled a friendly tender offer for freight services provider Contrans Group Inc. for $15 a share ($14.60 in cash and a special dividend of 40 cents a share). The premium was … no hold on, there was no premium. The offer was an 11-cent discount to where the stock closed at the day before. Not surprisingly, some argued that Contrans was being sold on the cheap.
Then on Sept. 17 TransForce extended its original offer for Contrans by three weeks to Oct. 7 – a glaring sign the company was having trouble winning over Contrans' shareholders. But there isn't a huge number of doors for the CEO to knock on to push this deal through. A mere five institutions hold 59 per cent of the stock and some of these institutions want a higher offer. TransForce needs two-thirds of Contrans' shareholders to approve the deal before it can go through.
So let's take a step back and answer one key question. Was that original offer really as cheap as it seemed? An analyst told me it was pretty much known for the past year that TransForce was going to make an offer for Contrans. The timing just wasn't known. In the meantime, the stock had been ticking inexorably higher (up 24 per cent over the past year) to reflect what investors figured the eventual buyout price would be. When the actual offer came through, the premium had arguably already been baked into the stock. So there is an argument that investors should just pocket the $15 a share and get on with their lives.
As for the holdouts, it's a bit of a tricky game to play. If they push too hard, they risk jeopardizing the entire deal and seeing Contrans' stock falling back to where it was a year ago. Meanwhile the prospect of a higher bid from a rival suitor doesn't seem likely either. One company mentioned with an outside chance of making a bid for Contrans is Mullen Group. (A call to Mullen Group chief executive officer Murray Mullen was not returned). Contrans' stock is trading right around the $15 offer price, so right now the market is not pricing in a higher bid.
The party perhaps with the most to lose if the deal falls apart is TransForce itself: On the day it made its initial offer for Contrans, its market cap shot up by about $300-million.
Niall McGee