0000950142-12-001947.txt : 20121009 0000950142-12-001947.hdr.sgml : 20121008 20121009060815 ACCESSION NUMBER: 0000950142-12-001947 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20121009 DATE AS OF CHANGE: 20121009 GROUP MEMBERS: CLARKE INC. GROUP MEMBERS: GEORGE ARMOYAN GROUP MEMBERS: QUINPOOL HOLDINGS PARTNERSHIP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: VITRAN CORP INC CENTRAL INDEX KEY: 0000946823 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 000000000 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-52463 FILM NUMBER: 121133465 BUSINESS ADDRESS: STREET 1: 185 THE WEST MALL STREET 2: SUITE 701 CITY: TORONTO STATE: A6 ZIP: M9C 5L5 BUSINESS PHONE: 416-596-7664 MAIL ADDRESS: STREET 1: 185 THE WEST MALL STREET 2: SUITE 701 CITY: TORONTO STATE: A6 ZIP: M9C 5L5 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CLARKE INC. CENTRAL INDEX KEY: 0001557988 IRS NUMBER: 000000000 STATE OF INCORPORATION: A5 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 6009 QUINPOOL ROAD, 9TH FLOOR CITY: HALIFAX STATE: A5 ZIP: B3K 5J7 BUSINESS PHONE: 902-442-3000 MAIL ADDRESS: STREET 1: 6009 QUINPOOL ROAD, 9TH FLOOR CITY: HALIFAX STATE: A5 ZIP: B3K 5J7 SC 13D/A 1 eh1201084_13da1-vitran.htm AMENDMENT NO. 1 eh1201084_13da1-vitran.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 13D
 
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
 
VITRAN CORPORATION, INC.
(Name of Issuer)
 
 
Common Stock, no par value per share
(Title of Class of Securities)
 
 
92850E107
(CUSIP Number)
 
Michael Rapps
Vice President, Investments
Clarke Inc.
6009 Quinpool Road, 9th Floor
Halifax, Nova Scotia B3K 5J7
Canada
Tel. No.: (902) 442-3000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
 
October 8, 2012
(Date of Event which Requires Filing of this Statement)
 
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 1(f) or 1(g), check the following box  o.
 
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent.
 
*The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.
 
The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
 
 
 
 
 
 
CUSIP No. 92850E107
 
 SCHEDULE 13D
Page 2 of 6


 
1
NAME OF REPORTING PERSON OR
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
 
Quinpool Holdings Partnership
  
2
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 
 
(a)  o
(b)  x
3
SEC USE ONLY
 
 
  
4
SOURCE OF FUNDS
 
WC
  
5
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
 
 
 o
6
CITIZENSHIP OR PLACE OF ORGANIZATION
 
Nova Scotia, Canada
  
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON
WITH
7
SOLE VOTING POWER
 
-0-
8
SHARED VOTING POWER
 
1,008,417
9
SOLE DISPOSITIVE POWER
 
-0-
10
SHARED DISPOSITIVE POWER
 
1,008,417
11
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
1,008,417
  
12
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
 
 o
13
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
6.2%
  
14
TYPE OF REPORTING PERSON
 
PN
  

 
 
 
 
 
 
CUSIP No. 92850E107
 
 SCHEDULE 13D
Page 3 of 6


 
1
NAME OF REPORTING PERSON OR
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
 
Clarke Inc.
  
2
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 
 
(a)  o
(b)  x
3
SEC USE ONLY
 
 
  
4
SOURCE OF FUNDS
 
OO
  
5
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
 
 
 o
6
CITIZENSHIP OR PLACE OF ORGANIZATION
 
Canada
  
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON
WITH
7
SOLE VOTING POWER
 
-0-
8
SHARED VOTING POWER
 
1,008,417
9
SOLE DISPOSITIVE POWER
 
-0-
10
SHARED DISPOSITIVE POWER
 
1,008,417
11
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
1,008,417
  
12
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
 
 o
13
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
6.2%
  
14
TYPE OF REPORTING PERSON
 
CO
  
                                                                                                 
 
 
 
 
 
 
CUSIP No. 92850E107
 
 SCHEDULE 13D
Page 4 of 6


 
1
NAME OF REPORTING PERSON OR
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
 
George Armoyan
  
2
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
 
 
(a)  o
(b)  x
3
SEC USE ONLY
 
 
  
4
SOURCE OF FUNDS
 
OO
  
5
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
 
 
 o
6
CITIZENSHIP OR PLACE OF ORGANIZATION
 
Canada
  
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON
WITH
7
SOLE VOTING POWER
 
-0-
8
SHARED VOTING POWER
 
1,008,417
9
SOLE DISPOSITIVE POWER
 
-0-
10
SHARED DISPOSITIVE POWER
 
1,008,417
11
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
1,008,417
  
12
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
 
 o
13
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
6.2%
  
14
TYPE OF REPORTING PERSON
 
IN
  
                                      
 
 
 
 
 
CUSIP No. 92850E107
 
 SCHEDULE 13D
Page 5 of 6
  
This Amendment No. 1 (this “Amendment”) relates to the statement on Schedule 13D filed on September 14, 2012 (the “Schedule 13D”) by Quinpool Holdings Partnership, a Nova Scotia partnership (“Quinpool”), Clarke Inc., a Canadian corporation (“Clarke”), and George Armoyan, a natural person and Canadian citizen (“Mr. Armoyan” and, together with Quinpool and Clarke, the “Reporting Persons”) relating to the common shares, without par value (the “Shares”), of Vitran Corporation Inc., an Ontario corporation (the “Issuer”).  Except as set forth herein, the Schedule 13D is unmodified.
 
Item 4.    Purpose of Transaction.
 
Item 4 of the Schedule 13D is hereby amended and supplemented as follows:

Mr. Armoyan, the Chief Executive Officer of Clarke, met with the Chairman of the Issuer on September 19, 2012, to discuss the Issuer’s business, operations, governance, management, financial condition and opportunities or strategic alternatives that may be available to the Issuer to enhance shareholder value.  On October 8, 2012, Clarke sent a letter to the Issuer regarding, among other things, the Issuer’s results of operations, corporate governance and strategic alternatives that may be available to the Issuer to enhance shareholder value.  That letter is attached hereto as Exhibit 99.1 and is incorporated by reference into this Item 4 as if set out herein in full.

Item 5.    Interest in Securities of the Issuer.
 
(a)           Based on the most recent information available, the aggregate number and percentage of the Shares that are beneficially owned by each of the Reporting Persons is set forth in boxes 11 and 13 of the second part of the cover page to this Amendment for each of the Reporting Persons, and such information is incorporated herein by reference.  All calculation of percentages of Shares beneficially owned by the Reporting Persons is based upon 16,399,241 Shares stated to be issued and outstanding as of July 18, 2012 in the Issuer’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on July 25, 2012.
 
(b)           The numbers of Shares as to which each of the Reporting Persons has sole voting power, shared voting power, sole dispositive power and shared dispositive power is set forth in boxes 7, 8, 9 and 10, respectively, on the second part of the cover page to this Amendment for each of the Reporting Persons, and such information is incorporated herein by reference.
 
(c)           Except as described in the Schedule 13D and in this Amendment, none of the Reporting Persons, nor, to the best knowledge of the Reporting Persons, any of the directors or executive officers of Clarke beneficially owns, or has acquired or disposed of, any Shares during the last 60 days.
 
 On September 26, 2012, 2,700 Shares were sold in open market transactions through the facilities of the Nasdaq Global Market at a price of $6.00 per Share for aggregate gross proceeds of $16,200. 
 
Item 7.    Material to be Filed as Exhibits.
 
The following is filed herewith as an exhibit:
 
 
 
 
 
 
CUSIP No. 92850E107
 
 SCHEDULE 13D
Page 6 of 6
 
 
 
SIGNATURES
 
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
 
Dated: October 9, 2012.
  
   
QUINPOOL HOLDINGS PARTNERSHIP
  
       
   
By: 
Clarke Inc., its managing partner
  
         
   
By:
/s/ George Armoyan
  
     
Name: George Armoyan
Title:   President and Chief Executive Officer
  
 
 
   
CLARKE INC.
  
       
   
By:
/s/ George Armoyan
  
     
Name: George Armoyan
Title:   President and Chief Executive Officer
  
 
 
    /s/ George Armoyan  
     
George Armoyan
  
 
 
 
 
 
 
 EX-99.1 2 eh1201084_exh9901.htm EXHIBIT 99.1 eh1201084_exh01.htm
EXHIBIT 99.1
 
GRAPHIC
 
October 8, 2012
 
BY E-MAIL
 
Vitran Corporation Inc.
185 The West Mall, Suite 701
Toronto, ON M9C 5L5
 
Attention:  Richard McGraw, Chairman of the Board
 
Re:
Vitran Corporation Inc. – Failed Strategy and Ways to Increase Shareholder Value
 
Dear Mr. McGraw
 
Clarke Inc. (“Clarke” or “we”) owns 1,008,417 common shares of Vitran Corporation Inc. (“Vitran” or the “Company”), representing approximately 6.2% of the Company’s outstanding shares. We are writing to express our view that the board of directors of the Company (the “Board”) and the Company’s management have, in recent years, done a terrible job managing the Company’s operations and allocating shareholder capital. We have outlined below a series of steps that we believe, if executed, will generate substantial value for Vitran shareholders. Ultimately, if the current members of the Board do not act to implement a long overdue plan to enhance shareholder value then it will be time for the shareholders to elect a new Board that is better suited to managing shareholders’ investment in the Company.
 
We kindly ask that you share this letter with Vitran’s other directors.
 
Operations and Capital Allocation
 
We have two principal issues with Vitran’s operations and management: the repeated poor performance of the Company’s US less-than-truckload (LTL) business and the Company’s failure in allocating shareholder capital.
 
First, the performance of the Company’s core LTL business is bad and keeps getting worse.1 Since 2005, the operating ratio in the LTL division has consistently worsened:
 
2005
2006
2007
2008
2009
2010
2011
H1 2012
93.1%
93.7%
96.0%
98.5%
100.5%
99.2%
101.4%
102.2%
 
This trend of worsening operating performance is inconsistent with most publically traded US LTL carriers. Since the end of the recent financial crisis, most of these companies have experienced improving operating ratios while Vitran has experienced the exact opposite trend. What used to be a profitable division now loses money on every dollar of revenue it generates. In other words, shareholders would lose less money today if the Company just stopped operating its US LTL business.
____________________________
1
The Company only discloses operating ratios by LTL and supply chain operations (SCO) segments and does not break out results for Canadian and US LTL. On the Company’s Q3 2011 conference call, Rick Gaetz, President and CEO, stated that Vitran’s “Canadian LTL operation operated in the lower 90s and our US LTL operation operated in the low to mid 100s.”

 
 
 
 
GRAPHIC
 
 
Management always has an excuse to justify this poor performance. Since 2008, management has cited the following as some of the reasons for poor quarterly performance:
 
§  Fuel and fuel surcharge issues
11 times
§  Increased personnel expense (wages, workers’ compensation and healthcare expense)
10 times
§  Poor economic environment
7 times
§  Poor operating results from US LTL segment
5 times
§  Poor weather conditions
5 times
§  Increased purchased transportation expenses
4 times
 
Many of management’s excuses relate to matters that are entirely within management’s control and, therefore, are either preventable or fixable. While we understand that the economy and the weather can negatively affect the transportation business from time to time, we do not understand how personnel costs can be a principal reason for the Company’s lousy performance in 10 out of the last 18 quarters. Why have personnel costs not been dealt with? We ask the same question of increased purchased transportation expenses. It is notable that despite management’s many excuses over the years, they have consistently failed to recognize their own responsibility for the Company’s dismal performance. Management needs to get its act together and the Board needs to hold management accountable.
 
We should note that we are modestly encouraged by the new executive team the Company recruited from Fedex Freight to run the US LTL division, although it is too early to tell if this will be a turning point for the Company or just another excuse in the quarterly reports. So far it is the latter (see Q2 2012 report).
 
Second, the Company’s capital allocation decisions in recent years have proven to be abysmal. While the Company’s Canadian LTL and SCO segments generate increasing levels of earnings (and the Company’s only earnings), the Company focuses on growing its US LTL business. Yet, each US acquisition the Company has completed has been followed by worse operating results. The Company acquired US LTL companies in May 2005, January 2006, October 2006 and February 2011. When you cross-reference the acquisition dates with the operating ratios identified above, one conclusion is clear: more acquisitions, worse results. In light of this record of failure, we find it surprising that the Board would have approved the Company's most recent acquisition in 2011. It is not surprising, though, to learn that the result of such acquisition was to further weaken the Company’s performance, with an operating ratio that went from 99.2% prior to the acquisition to 102.2% in in the first six months of 2012.
 
Conversely, the SCO segment, which has mostly grown organically over the last decade, continues to improve its results. Its operating ratio since 2005 is as follows:
 
2005
2006
2007
2008
2009
2010
2011
H1 2012
94.7%
93.3%
93.8%
94.6%
92.8%
92.4%
91.4%
92.4%
 
If we didn’t know better, we would think this is a completely different company!

 
 
 
 
GRAPHIC
 
With the track records above, the Board should be allocating all of its growth capital to the SCO and Canadian LTL segments. Alas, it has not.
 
Governance
 
To be blunt, Clarke does not have faith in the Board, which, among other faults, has presided over a Manifest Destiny-like expansion program that has transformed a profitable company into a money-loser.
 
Many of the individuals on the Board have held their directorships for far too long. Of the seven current directors, only one has served for less than seven years while the longest serving directors were elected in 1987. It is time for new faces and new ideas on the Board. New directors can add a new perspective on the Company, the industry and how to deal with Company’s problems while looking at the Company in a more dispassionate manner. New directors can also challenge management in a way that a director who has been on the Board for decades cannot. We would also strongly encourage the Board to add a director with recent and relevant industry experience.
 
Finally, many of the directors make decisions that affect the Company’s shareholders but not themselves. Until two weeks ago (that is prior to the filing of our 13-D), four of the seven directors did not own any Vitran shares. This lack of personal ownership reflects a lack of faith in the Company and its management. Additionally, this lack of personal ownership may explain why decision making at Vitran has been so poor – directors don’t have any skin in the game, so they have nothing to lose from making bad decisions.
 
New Strategy
 
We believe the Company’s intrinsic value is much greater than the current share price. The SCO segment is a hidden gem that is not getting the valuation (or credit) that it deserves. We believe the Company should pursue the following actions to unlock meaningful and immediate value for shareholders.
 
First, the Company should sell the SCO segment. The SCO segment generated $10.3 million of income in 2011 and we estimate $11.7 million of EBITDA during the same period. Based on comparable company valuations, we believe the Company could generate $100.0 million of gross proceeds from a sale of this division. That’s roughly equal to the Company’s entire market value today!
 
A sale of the SCO segment would be beneficial for several reasons. Supply chain/logistics businesses are generally valued at a higher multiple of their earnings than trucking companies; yet that valuation is not being applied to the SCO segment because it is lost within the LTL business. Additionally, Vitran currently employs considerable financial leverage; Vitran should monetize this asset now from a position of relative financial strength rather than potentially being forced to sell this division at a lower valuation to repay additional debt assumed down the road. Finally, by selling the profitable SCO segment, the LTL segment will be forced to stand on its own rather than being able to fall back on the subsidy of a healthier division.

 
 
 
 
GRAPHIC
 
Second, the Company should use the proceeds from the sale of the SCO segment to repay all of its revolving debt ($32.9 million at June 30, 2012). This will put the Company on sounder financial footing.
 
Third, the Company should commence a substantial issuer bid to repurchase a material portion of its shares. Assuming 4.0 million shares were repurchased at a price of $7.00/share, the Company would use $28.0 million, retire 25% of its stock and have $39.0 million remaining from the SCO sale proceeds. This would create a liquidity event for shareholders who may have difficulty monetizing their investment given the limited trading volume in the Company’s shares. More importantly, this would return capital to shareholders who have been waiting a very long time for a return of their investment (never mind a return on their investment).
 
The remaining SCO sale proceeds could be used to repay higher-interest capital leases, fund capital expenditures (perhaps to reduce purchased transportation expenses) or fund mandatory principal repayments. Alternatively, the Company could use its newfound liquidity ($39.0 million of cash and $85.0 million undrawn revolver) to expand its Canadian LTL business, which has been consistently profitable and should remain so in coming years.
 
What Does This All Mean?
 
We estimate that the Canadian LTL business generates approximately $12.0 million of EBITDA on approximately $200.0 million of revenue, representing an EBITDA margin of 6%. If the US LTL business (under its new management) can achieve a margin of only half the Canadian LTL business, it would generate $14.5 million of EBITDA annually.2 Assuming the current level of corporate expenses and based on comparable LTL company valuations, Vitran could be valued at 5.5x EBITDA or an enterprise value of approximately $164.4 million. This would imply a share price of $12.00 or 88% higher than the current share price of $6.40.3
 
If the US LTL business managed to achieve the same margins as the Canadian LTL business, EBITDA would be $29.1 million, which, all other things being equal, would imply a share price of $18.50 or 189% higher than the current share price.
 
As you can see, there is tremendous opportunity at Vitran to unlock the Company’s true value and put the Company on sounder financial footing. The Board should act immediately to implement the plan we have outlined above and to fix its US LTL operations. The Board’s failure to act would clearly be inconsistent with its fiduciary duties. Should the Board not implement policies aimed at unlocking the value that exists within the Company, Clarke will consider measures to replace the Board with individuals who are concerned about the Company’s shareholders and their investment in Vitran.
 
______________________________________
 
2
In determining country-level revenue excluding the SCO segment, we have assumed that the SCO segment’s revenue is split proportionately between countries based on the number of facilities located in each country.
 


 
 
 
 
GRAPHIC
 

 
We would be happy to discuss our concerns and proposed strategy in more detail at your convenience.
 
Sincerely,
 
CLARKE INC.
 
 
/s/ Michael Rapps

Michael Rapps
Vice-President, Investments
 
 
 
 
 
 
 
 
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