The Carlyle Group sailed in to acquire CSX Corp.’s CSX Lines ocean transport subsidiary in a deal valued at $300 million. Upon the deal’s closing, Carlyle will name the new entity Horizon Lines, LLC. The transaction is expected to be completed in the first quarter of 2003.
Of the $300 million purchase price, $240 million will be paid in cash with the remaining $60 million in the form of securities, giving CSX a 20% ownership stake in the company. ABN AMRO Bank is providing the financing for the deal. The purchase price comes to roughly eight times CSX Lines’ 2002 expected operating income.
CSX Corp.’s divestiture of the ocean transport unit is in line with its announced strategy to narrow its focus to rail-based services. The company controls CSX World Terminals, its remaining marine operations, which posts annual earnings of approximately $70 million. Current estimates indicate that a sale of that entity could bring CSX Corp. nearly $1 billion. Both CSX Lines and CSX World Terminals were part of CSX Corp.’s acquisition of Sea-Land in 1986 for roughly $800 million.
CSX Lines controls 17 U.S. flag vessels and more than 22,000 containers. The company is the largest ocean transport concern in the U.S. and provides ocean transportation and logistics services to and from the continental U.S., Alaska, Hawaii, Guam and Puerto Rico. Carlyle will keep CSX Lines’ existing management in place, with President and Chief Executive Officer Charles Raymond also taking on the additional role of chairman of the board. The company is expected to generate operating earnings of more than $38 million in 2002, with revenues of more than $750 million.
The ocean transport industry is just getting settled again after an upheaval in October 2002, stemming from the 10-day lockout on the West Coast ports, which according to some estimates cost roughly $1 billion a day to the U.S. economy. The lockout ended Oct. 9, at the mandate of U.S. District Judge William Alsup, who was guided by a Bush Administration request. Following the return to work, the longshoremen were accused of initiating a work slowdown, in a further setback to the industry. However, in November, the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) reached a tentative six-year agreement that most expect to calm the waters between the two sides. Indeed, based on year-over-year jumps in TEU (20-foot equivalent units) volume in November, the recovery has already begun.
For the deal, Carlyle will use its Carlyle Partners III, LP fund, which closed in December 2000 with $3.9 billion in capital. The firm has been active recently. In December, Carlyle acquired Casema’s Dutch cable business with Providence Equity Partners, reached an agreement to buy Firth Rixson, a UK engineering group, and bought a stake in QinetiQ, a science and tech business based in Europe. The previous month, Carlyle named Louis Gerstner, Jr., former head of IBM, as its new chairman to succeed Frank Carlucci, who will become chairman emeritus.