Matson Inc. announced Tuesday it has agreed to acquire Horizon Lines for $456 million. The number includes $69.2 million in Horizon stock plus the repayment of debt outstanding at closing less proceeds from Horizon's planned sale of its Hawaii operations. The purchase by Matson includes Horizon's Alaska operations.
In a separate announcement on Tuesday, Horizon said that it would sell its Hawaii business to The Pasha Group for $141.5 million and intends to shut down its Puerto Rico domestic liner service by the end of 2014 due to continuing losses.
"The acquisition of Horizon's Alaska operations is a rare opportunity to substantially grow our Jones Act business," Matt Cox, president and CEO of Matson, said in a statement. "Horizon's Alaska business represents a natural geographic extension of our platform as a leader serving our customers in the Pacific."
Sea-Land Service pioneered the marine container shipping industry and established Horizon Lines' business on April 26, 1956, when the vessel Ideal-X sailed from Newark, N.J., to Houston. Sea-Land introduced container shipping to the Puerto Rico market in 1958, which Horizon has continued to the present.
In Puerto Rico, Horizon has incurred substantial cumulative losses and negative cash flows in recent years, despite ongoing efforts to remain competitive. Horizon is currently serving the trade with two vessels built in the early 1970s that have become increasingly costly to operate and expensive to maintain. As recently as 2012, Horizon operated four vessels, but the company had been forced to remove two vessels from the Puerto Rico service due to prolonged falling demand and the need to cut costs.
Earlier this fall there were reports that Crowley Maritime Corp. was negotiating to buy Horizon’s Puerto Rico business assets for about $80 million.
Horizon Lines will cease liner service for domestic customers by the end of the year, however San Juan terminal services will continue to be provided into the first quarter of 2015. The company will work closely with customers to assist them in identifying service alternatives.
The company is expected to incur restructuring charges between $90 million to $100 million related to terminating its Puerto Rico operations. These charges include the cost of employee severance and termination benefits of $35 million to $45 million and costs of $55 million primarily related to equipment impairment and contract termination costs. Approximately $85 million to $95 million of the charges are expected to result in cash payments. These costs are preliminary estimates and are subject to change.
Under the terms of the Horizon-Pasha agreement, Pasha will acquire certain subsidiaries of Horizon constituting substantially all of Horizon’s Hawaii trade-lane business, including four Jones Act container ships. Immediately following Pasha’s acquisition of Horizon’s Hawaii trade-lane business, Horizon will be acquired by Matson. The transaction is expected to close in 2015.
