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Is the cat out of the bag on a TFI and ArcBest deal?

Things may soon get interesting in the less-than-truckload mergers and acquisitions space.

On the TFI International Inc. (NYSE: TFII) analyst call Monday night, it was revealed that the Montreal-based transport conglomerate held a 4% stake, or a little more than 1 million shares, in ArcBest Corp., an asset-based LTL carrier and non-asset-based provider located in Fort Smith, Arkansas. TFI spent $89 million for the stake.

Alain Bédard, TFI’s chairman, president and CEO, did not discuss the possibility of any type of deal other than to say that TFI would like to explore mutually beneficial operating opportunities.

Bédard spoke highly of ArcBest (NASDAQ: ARCB), noting that because TFI and ArcBest’s asset-based LTL unit are unionized, “there are some things that we could work together [on] and improve over time.”

For example, TFI’s U.S. LTL operation, T-Force Freight, owns a large amount of unused real estate. ArcBest would be part of the conversation should it be interested, he said.

Jason H. Seidl, a transport analyst for Cowen & Co., said Tuesday that TFI’s actions speak louder than Bédard’s words. “I believe TFI is interested in acquiring ArcBest,” he told FreightWaves. Regarding Bédard’s efforts to tamp down speculation of a potential deal, Seidl said that “it’s hard to put the toothpaste back in the tube.”

Any discussions, if they happen, would not take place until after ArcBest reaches an agreement on its upcoming Teamster contract, which expires in June, Seidl said. ArcBest was not immediately available to comment.

Tom Wadewitz, a transport analyst at UBS, was a bit more circumspect, saying in a Tuesday note that TFI is likely interested in ways to share terminal assets and pickup and delivery capacity to support the cost structures of both companies.

Wall Street is already being forward looking. ArcBest shares spiked in after-hours trade on Monday and kept soaring into the Tuesday session. More than halfway through the trading day, shares were trading up more than 17%. TFI shares were up strongly as well.

Siedl said TFI would hope, if it acquired ArcBest, to replicate in the U.S. the long-successful model of its Canadian LTL operations. It might also look to integrate T-Force Freight into ArcBest. T-Force Freight is the rebranded name of the former UPS Freight, which TFI acquired from UPS Inc. (NYSE: UPS) in early 2021 for $800 million in cash. 

Bédard has been open about the struggles so far in integrating T-Force Freight into the rest of TFI’s sprawling business. About one-third of the freight that came with the deal was a bad fit for TFI, he said. The company has been shedding much of that freight, which would account for its U.S. LTL volumes being down about 19% year over year, a much deeper drop than its peer group.

Bédard said he hopes that in the fourth quarter T-Force Freight will have an operating ratio — the ratio of revenues to expenses — in the high 80s. The carrier posted a 90.4% ratio in the first quarter, better than some analysts were expecting.