Horizon Drops Anchor In Castle Harlan Portfolio –

In a secondary transaction announced in late May, New York-based Castle Harlan agreed to buy The Carlyle Group’s Horizon Lines, a North American container shipping company. Castle Harlan will pay $650 million for the business, which Carlyle had acquired slightly more than one year earlier from CSX Corp.

Horizon, headquartered in Charlotte, NC, owns 16 vessels and approximately 21,700 cargo containers. The company handles shipments between the U.S. mainland and ports in Alaska, Hawaii, Guam and Puerto Rico.

“The company’s really developed a solid position in its market,” said Marcel Fournier, a managing director with Castle Harlan. “It’s the largest shipping company for those regions… plus its cargo shipments are diversified and the company has a stable revenue base.”

Horizon controls 37% of the marine container shipments between the U.S. and its primary markets, and in fiscal 2003, Horizon reported revenue of $830 million, which represented growth of more than 9% from the year-earlier.

Moreover, Fournier said that the Jones Act provides a barrier to new competition entering the market. The Jones Act, enacted in 1920, mandates that maritime trade between U.S. ports is limited to only companies that are owned and incorporated in the U.S., with ships that are built and registered domestically and crews that are predominantly U.S. citizens.

In addition to restricting foreign competition, Fournier noted, “It also denotes a high degree of quality when you have U.S.-flag vessels and crews.”

To buy the company, Castle Harlan will use equity from its Castle Harlan Partners IV, L.P. fund. The firm closed the fund in September 2003 at $1.163 billion.

Fournier said the firm has yet to finalize a financing agreement to support the transaction, but noted it will probably consist of a combination of bank and bond debt. Horizon management will also continue to hold a stake in the business.

Castle Harlan has been active recently near the equator. Earlier in May, the firm worked out a deal to buy Puerto Rican Burger King Franchisor Caribbean Restaurants for $340 million.

The Carlyle Group, for its part, will do pretty well for its short embrace of Horizon. The firm carved the business out from CSX Corp. in $300 million deal completed in the first quarter of 2003. Caryle, using its 2000-vintage, $3.9 billion Carlyle Partners III Fund, reportedly contributed about $40 million of equity to the investment for an 80% stake in the business. CSX, meanwhile, held onto a 20% stake through the provision of $60 million in seller financing.

Snapshot

Buyer: Castle Harlan

Target: Horizon Lines

Seller: The Carlyle Group

Purchase Price: $650M

Advisor: Carlyle: Goldman Sachs

Legal Counsel: Castle Harlan: Schulte, Roth & Zabel; Carlyle: Latham & Watkins