C.H. Robinson Worldwide Inc (CHRW.O), a third-party provider of freight transport, will buy privately owned Phoenix International for $635 million in cash and stock to expand its forwarding business.
The acquisition gives C.H. Robinson a strong footing in the international forwarding business, which involves mostly ocean shipping, at a time when high costs are hurting the trucking industry.
"We view this as a nice acquisition that allows the company to further diversify away from the truck brokerage business without straining the balance sheet," RBC Capital Markets analyst John Barnes wrote in a note to clients.
C.H. Robinson shares were up 2 percent at $59.85 Tuesday afternoon on the Nasdaq.
The company, which gets about three-quarters of its net revenue from its trucking business, said it's the net revenue margin for full truckload services shrank in the three months to June 30 as costs rose faster than pricing.
Both railroads and trucking companies have reported lower volumes in recent months on worries about the weakening global economy and uncertainty about U.S. tax policy.
Package delivery giant FedEx Corp (FDX.N) lowered its fiscal 2013 forecast last week, saying customers were shifting to lower-priced and slower shipping options.
A GOOD FIT
The Phoenix deal will help C.H. Robinson become a one-stop-shop providing an array of freight services, said Jason Seidl of Dahlman Rose & Co.
The company bought Poland's Apreo Logistics for an undisclosed amount early this month. Apreo offers warehouse logistics, full truckload services and sea and air forwarding.
Phoenix, founded by Bill McInerney in 1979, arranges shipments for customers via air and sea. The company, which has more than 2,000 employees in 74 offices worldwide, is owned by McInerney and other executives and employees.
Sources had told Reuters in June that Chicago-based Phoenix was exploring a sale and that could fetch as much as $500 million.
C.H. Robinson, which has a market value of about $9.30 billion, said it would pay Phoenix shareholders $571.5 million in cash and the remaining $63.5 million in new stock.
Phoenix had net revenue of about $161 million in the fiscal year ended June 30. C.H. Robinson reported full-year revenue of $10.34 billion for the year ended December 2011.
C.H. Robinson, which has 53,000 contracted carriers, said it expects the deal to be modestly accretive in the first year.
The Minneapolis-based company said it will use existing cash and plans to enter into a revolving credit facility with major banks to finance the cash portion of the deal, which is expected to close in the fourth quarter.
(Additional reporting by A. Ananthalakshmi in Bangalore; Editing by Ted Kerr and Supriya Kurane)