Matson to acquire Horizon Lines

Matson will buy Horizon Lines.   Prior to the acquisition, Pasha will purchase the Hawaii trade lane from Horizon.  I suspect this is because if Matson took over the Horizon Hawaii service, it would not be approved because it would be a monopoly (although Horizon says this was done to reduce debt).

click here for link to complete press release

Horizon Lines To Be Acquired By Matson For $0.72 Per Share In Cash
November 11, 2014
CHARLOTTE, N.C., Nov. 11, 2014 /PRNewswire/ -- Horizon Lines, Inc. (OTCQB: HRZL) ("Horizon") today announced it has entered into definitive agreements with each of Matson Inc. (NYSE: MATX) ("Matson") and The Pasha Group ("Pasha"). Under the Matson agreement, Matson will acquire all outstanding shares of Horizon Lines for $0.72 per share in an all-cash transaction. The acquisition price represents a premium of approximately 89% over Horizon's closing stock price on November 10, 2014.  The Matson agreement has been unanimously approved by Horizon's Board of Directors and Horizon shareholders representing 55% of the fully diluted equity, which also represents 41% of the outstanding voting common stock on November 11, 2014, have agreed to vote their shares in support of the transaction.
Under the Pasha agreement, Pasha will acquire Horizon Lines' Hawaii trade lane business, prior to closing of the Matson agreement, for approximately $141.5 million in cash. The proceeds from the Pasha transaction will reduce Horizon Lines' debt obligations prior to closing of the Matson transaction, at which time Matson will acquire all of the outstanding shares of Horizon Lines and repay the remaining debt outstanding at closing. The Pasha agreement has been unanimously approved by Horizon's Board of Directors.
As a result of the transactions, Matson, Inc. will acquire all of Horizon Lines' business operations, except for the Hawaii trade lane business. The two transactions taken together are valued at approximately $598 million on an enterprise value basis. Matson will fund its transaction from available borrowings under its bank credit facilities and existing cash on hand. Pasha will fund its transaction from a committed debt financing agreement.  There are no financing conditions to either transaction.

Fall out from illegal price fixing U.S./Puerto Rico

In general, I have a problem with this whole idea that only U.S. Flag carriers can offer service between the mainland and Puerto Rico. That also applies to Hawaii and Alaska.

To add insult to injury, the carriers operating between the mainland and Puerto Rico got together to illegally fix their rates. Some people went to jail for this action.

This is the outcome for Horizon Lines, one of the carriers.

Horizon Lines was facing multiple class action lawsuits from customers who claimed financial damage because of the company’s allegedly unlawful conduct, after the US Department of Justice antitrust division’s investigation into price fixing between Horizon Lines and its trade rivals became known.

HORIZON Lines has agreed to pay $20m and freeze freight rates in its Puerto Rico trade lane for two years to settle a class action lawsuit brought by disgruntled customers.

Customers with Puerto Rico contracts with the Jones Act container line would have the option, in lieu of receiving cash, of a freeze on their base rates for two years beyond the expiration the contracts.

If I were a customer of Horizon, I would do 2 things.

1) Take the money, not the freeze on rates

2) Start looking for services from Europe and South America to Puerto Rico. Start shopping the rates from those origins, and use these to negotiate new rates with your carrier.

Who knows, maybe in the end it will be cheaper to source products from someplace other than the mainland U.S.

More Jones Act Carriers to be charged

Peter Baci of Sea Star Lines was the first to be sentenced.

If one believes a report from Fairplay, there will be many more folks going to jail, as well as customers lining up to file suit (as they paid more for ocean freight because of the collusion).

US-flag container lines, not just their management, also face the strong possibility of criminal prosecution. On the civil liability front, shippers have already filed class actions against carriers in the four main Jones Act trades: Puerto Rico, Hawaii, Alaska and Guam.

Potential civil settlements to compensate for over a half-decade of alleged collusion – plus a thinning of executive ranks due to imprisonments – could transform the Jones Act container industry.

The "Jones Act" is actually the Merchant Marine Act of 1920.

The cabotage provisions restrict the carriage of goods or passengers between United States ports to U.S. built and flagged vessels. In addition, at least 75 percent of the crewmembers must be U.S. citizens. Moreover foreign repair work of U.S.-flagged vessels' hull and superstructure is limited to 10 percent foreign-built steel weight.[1] This restriction largely prevents American shipowners from refurbishing their ships at overseas shipyards.

The Jones Act is the reason you can't board a cruise ship in Miami and get off in Long Beach.

Horizon Lines is the carrier who will be hard hit by this, and they are a public company and trade in all of the Jones Act trades. I wouldn't be recommending their stock.