Expeditors & CH Robinson proxy filings – always worth a look
It’s that time of year…
The recent strategy of US Jones Act carrier Matson is a textbook example of how value can be delivered to shareholders and, more broadly, how companies operating in the container liner industry should proactively manage their asset base while looking for bargains in distressed asset sales.
In November, Matson announced it would acquire debt-laden Horizon Lines, valuing the target’s equity at only $69.2m, and the enterprise, which includes net debt, at about $460m. The deal is pending regulatory approval and is expected to close in 2015.
Matson boasts a dominant position between the US mainland and Hawaii, but the takeover of Horizon operations in Alaska allows it to strengthen its leadership in the Pacific as Horizon, its main rival, disappears from the map.Horizon’s Hawaii business is being sold to Pasha Group for $141m, while its operations in the Puerto Rico trade will be discontinued.
Matson’s opportunistic move comes a mere two years after its creation as a standalone entity – after emerging in early 2012 from the break-up of Alexander & Baldwin Holdings into Matson and Alexander & Baldwin.
The separation has contributed stellar returns to shareholders of both entities. Alexander & Baldwin stock rose almost 60% in less than 30 months, while Matson shares have more than doubled in value since before the split was announced.
Horizon was on the verge of bankruptcy and struggling with high costs of operating, and possibly upgrading, steam turbine cargo vessels. So, Matson, the most obvious suitor, sneaked in with an opportunistic bid to secure much-needed growth, in a deal that adds about $330m of revenue to its projected $1.7bn turnover.
The combination eliminates competition in the domestic liner trades, which was already limited given that the highly regulated sector has been protected for almost 100 years by the Jones Act cabotage legislation, which covers maritime trades between US ports and within US waters, and requires that all goods transferred by water are carried on US-built, -owned and -flagged vessels crewed by US citizens.
By acquiring part of Horizon’s assets, Matson achieves balance sheet efficiency while strengthening its position in core markets.
In financing the deal, Matson has deployed virtually all of its low-yielding cash and used existing borrowings to invest in a cash- and earnings-accretive deal – a very smart move.
On a pro-forma basis, Matson’s resulting leverage ratios look manageable and will likely remain within covenants if managers continue to deliver on their promises.
Any doubts they will? Well, Matson’s management seem to know exactly what they are doing, and that showed in third-quarter results released in November, and there has been a lot for investors to like in its M&A strategy, too.
“The acquisition of Horizon’s Alaska operations is a rare opportunity to substantially grow our Jones Act business,” Matt Cox, Matson chief executive, said on November 11, adding that Horizon’s Alaska operations represented a natural geographic extension of Matson’s business.
Management also noted they were encouraged by the long-term prospects of the Alaska market, which mirrors Hawaii in many operational ways, despite different underlying economic drivers.
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