American Commercial Lines has signed a $550 million deal with American Electric Power (AEP) to acquire the company’s commercial barge transportation subsidiary, AEP River Operations.
Headquartered in Chesterfield, Mo., AEP River Operations delivers approximately 45 million tons of product annually, including 10 million tons of coal. The company has 56 towboats, 2,301 barges and 1,090 employees, with operations in Paducah, Ky., and Convent, Algiers and Belle Chasse, La.
ACL, owned by Platinum Equity, is a diversified marine transportation service company based in Jeffersonville, Ind.
AEP announced in March that it was shopping its inland river operations unit, hiring Morgan Stanley & Co. to review potential alternatives. AEP originally acquired the business, then known as MEMCO, from Progress Energy in 2001.
The unit earned $49 million in 2014 compared to $12 million in 2013. Though the earning spike was significant, AEP is foremost a utilities company, not a barge carrier.
“AEP is focused on delivering customer and shareholder value as a regulated utility company. AEP River Operations has an incredible legacy of success, but operating a commercial barge transportation company no longer fits well with our strategy,” said Nicholas K. Akins, AEP chairman, president and CEO.
“ACL has been in the barge transportation business for 100 years and is one of the premier liquid and dry cargo barge lines in the country. ACL shares our commitment to safety and customer service, and several members of their management team know first-hand the exceptional value and potential of AEP River Operations’ employees and fleet,” Akins said.
Mark Knoy, president and CEO of ACL, ran AEP River Operations for 10 years before joining ACL in 2011.
"ACL and AEP River Operations are highly complementary businesses that share the same business practices and commitment to safety and customer service," Knoy said. "I know the fleet, the operations, the people and the culture on both sides and I can't think of a better fit. We are excited to join together and create something special."
Knoy is not the only ACL executive who has history with AEP River Operations — Paul Tobin, ACL's chief operating officer, and Robert Blocker, ACL's senior vice president of sales and customer service, also worked there before joining ACL in 2011 along with Knoy. All three were previously employed by MEMCO.
Knoy pointed to complementary networks and traffic patterns between the two companies.
"There is a great deal of value to be gained through increased fleet velocity and tow density, as well as in purchasing, port services and a more efficient cost structure," said Knoy. "I'm highly confident in our ability to integrate the businesses and realize those benefits."
Upon close of the sale, ACL will acquire AEP River Operations by purchasing all the stock of AEP Resources, the parent company of AEP River Operations. ACL will assume all assets and liabilities of AEP River Operations.
AEP expects to net approximately $400 million in cash after taxes, debt retirement and transaction fees. The company will invest the proceeds in its regulated business. AEP expects to record a net gain of approximately $125 million from the sale.
AEP will retain ownership of its captive barge fleet that delivers coal to the company’s regulated coal-fueled power plants owned by Appalachian Power, Kentucky Power and Indiana Michigan Power. AEP has signed a contract with ACL to dispatch and operate AEP’s captive barge fleet through the end of 2016. The captive barge fleet delivers about 19 million tons of coal annually to AEP’s regulated power plants. The fleet has 12 towboats, 498 barges and 229 employees.
“What’s happening with the coal market could very well have had something to do with it,” said Clark Todd, president, Blessey Marine, Harahan, La. “It’s not going to really affect us because they are so heavily invested in the dry cargo market. But I know Mark Knoy (ACL’s president and CEO). That’s a guy who really understands the industry. I have to think it’s a good thing for the industry as a whole.”
The transaction is expected to close in the fourth quarter, subject to regulatory approval and closing conditions.
