Trust Worthy: Contrans boss questions future of income trusts

WOODSTOCK, Ont. — Not only was Contrans the first trucking company to become an income fund, it was the very first publicly traded equity corporation in Canada to change into an income fund.

Now led by CEO Stan Dunford, Contrans has been not only seeing year-over-year revenue growth, it has been growing by acquisition. In the past year alone, Dunford says about 70 companies solicited Contrans with offers to sell. Of them, he says, “we bought four.”

One of them Contrans purchased a few days after the Federal Government slapped the entire income-trust business last Halloween with the announcement that it’s changing the rules and taxing such businesses like other corporations.

Dunford suspects many income trusts will be
forced to offer returned much less than before.

While the change won’t end Contrans’ days of growing by acquisition are not over, Dunford and others say the Federal Government has done the industry a huge disservice with the October ’06 announcement. Mostly, Dunford says, the unforeseen changes to the legislation robbed income trusts of their ability to purchase companies through the issuance of equity by as much as 30 to 40 percent.

“Prior to the announcement, each of the trusts was trading at a much higher multiple, which allowed them to pay more for the companies they acquired,” he says in an interview with Today’s Trucking.

“It has a ripple effect throughout the entire industry and it’s sad that this had to happen, because for years the trucking industry was never an industry that the financial industry liked but we were finally changing the credibility of trucking.”

Right now, the income trust community is still deciding how to proceed. Some might convert to equity corporations, others may go private while others might stay the course.

So, is there any reason for trucking companies to remain a trust?

“That’s the question. What’s the world’s opinion going to be on income trusts after this?” he asks rhetorically. “Most of them will have to reduce their distribution by the amount of the tax and therefore offer a yield or return much less than what it was before.

“The trusts brought a real discipline to the management of the companies. The world loves that model of a company that delivers returns on a monthly basis and there’s going to be a need for that.”

While the outspoken Contrans boss insists he’s staying out of politics, he does have some harsh words for Canada’s federal Conservatives. “So far,” Dunford says. “[Prime Minister] Harper and [Finance Minister] Flaherty are in second place in world-wealth destruction at $40 billion. With zero accountability.”