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Never quite getting to that fading Horizon

Never quite getting to that fading Horizon
Every so often, the US merchant marine achieves some type of “Glory Days”. So it was in the 1960’s with SeaLand, founded by Malcolm McLean, known for firing the first big shots in the containerisation revolution.

The grand names of the 1960’s are long gone. SeaLand itself went to Maersk in the late 1990s, with its US Jones Act fleet, serving Puerto Rico/ Alaska and Hawaii, re-christened as Horizon Lines. The private equity firms Carlyle and, then, Castle Harlan were able to successfully re-construct a balance sheet, initially on life support, with Castle Harlan making a successful exit through sales of shares. 

Horizon, left without a financial war chest by the late 2000’s, had attempted to be creative in its fund raising efforts, but, to no avail. But, in recent years, the carrier struggled as its ships, several with steam plants, dating to the 1960’s, got older, and overcapacity continued to haunt its major trades. In contrast, better capitalised entities TOTE (owned by Saltchuk) in the Alaska / Puerto Rico trades, Matson (in the Pacific island trades) and Crowley were able to re-engine or order new tonnage.

The shoes have finally dropped in a series of announcements. Earlier this year, it became clear that the under-capitalized and over-aged status quo could not continue. Thus, last week’s developments came as no surprise to anyone. Technically. Matson, the major service provider to Hawaii, is “acquiring” Horizon Lines.

Horizon, with its stock presently listed in the “pink sheets” (symbol “OTCQB:HRZL”) said that it would terminate its business linking Elizabeth, NJ and Jacksonville to Puerto Rico. Its Alaska shipping business to is going to remain with acquirer, Matson Inc. (Nasdaq “MATX”) in a deal worth $69m, net of the debt which it’s picking up.

The privately held Pasha Group, also active in trades serving Hawaii, would be buying the Pacific business, in a deal valued at $141m. In Hawaii, totally dependent on imported goods, anti-Jones act sentiment (a recurring theme) is likely to be stoked, since the market will only be served by Matson, the leader, and not a politically viable acquirer of Horizon’s Hawaii business, and Pasha, much smaller than Matson, going forward.

The exit from the Puerto Rico trades is anticipated to occur within 2014. The two corporate deals are expected to be consummated by early next year with the fate of Horizon’s dedicated corporate staff, based mainly in Charlotte, North Carolina, an intermodal hub for the Southeastern United States, still unclear.

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