Struggling Jones Act shipping company Horizon Lines announced Tuesday plans to terminate its Puerto Rico operations and said it has separately entered into a series of definitive agreements that will result in the sale of the entire company.
Struggling Jones Act shipping company Horizon Lines announced Tuesday plans to terminate its Puerto Rico operations and said it has separately entered into a series of definitive agreements that will result in the sale of the entire company.
Horizon Lines made the announcement in a press release issued Tuesday, saying that the company would cease providing liner service between the U.S. and Puerto Rico by the end of 2014 due to continuing losses without the prospect of future profitability. Horizon Lines also announced the sale of its Alaska operations to Matson, Inc. and its Hawaii business to The Pasha Group.
The deal with Matson, which was unanimously approved by the Board of Directors of both companies, includes all of Horizon Lines’ Alaska operations and the assumption of all non-Hawaii business liabilities. Matson said that the value of the transaction is $456.1 million, including $69.2 million in stock plus the repayment of all outstanding debt. The transaction is expected to close in 2015 after the completion of Horizon’s sale of its Hawaii Business to The Pasha Group, Horizon’s shareholder approval, and other customary closing conditions.
The deal with The Pasha Group includes four Jones Act containerships providing service between the mainland United States and Hawaii for approximately $141.5 million. The deal is expected to close in 2015 and is subject to regulatory approval, satisfaction of the closing conditions to the merger of Horizon and Matson and other customary closing conditions.
In Puerto Rico, Horizon Lines 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, which have become increasingly costly to operate and expensive to maintain. As recently as 2012, Horizon operated four vessels, but was forced remove two vessels from the Puerto Rico service due to prolonged falling demand and the need to cut costs.
Sea-Land Service, Inc. pioneered the marine container shipping industry and established Horizon Lines’ business on April 26, 1956, when the vessel Ideal-X sailed from Newark, New Jersey to Houston, Texas. Sea-Land introduced container shipping to the Puerto Rico market in 1958, which Horizon Lines has continued to the present. Horizon says it will cease the Puerto Rico 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. Horizon Lines added that its decision to terminate its Puerto Rico service is independent of the transactions with Matson and Pasha Group, and that it intends to cease operations between the U.S. and Puerto Rico whether or not those are consummated.
“We have a 56-year history in the Puerto Rico trade and truly value the relationships we have established,” said Steve Rubin, President and Chief Executive Officer of Horizon Lines. “Unfortunately, a combination of factors, including uncertain prospects for the Puerto Rican economy, losses over recent years and more expected going forward, aging ships that we cannot afford to continue to maintain or replace, and upcoming large capacity additions by two other carriers has led to this difficult but prudent and necessary decision.”
Speaking of the acquisition of Horizon Lines’ Alaska operations by Matson, Matt Cox, President and Chief Executive Officer of Matson, said: “The acquisition of Horizon’s Alaska operations is a rare opportunity to substantially grow our Jones Act business. Horizon’s Alaska business represents a natural geographic extension of our platform as a leader serving our customers in the Pacific. We expect this transaction to deliver immediate shareholder value through earnings and cash flow accretion via significant cost and operating synergies. We are also encouraged by the long-term prospects of the Alaska market, which mirrors Hawaii in many operational ways, despite different underlying economic drivers. Both markets depend on reliable, superior and timely container cargo service as part of vital supply lifelines – hallmarks of the Matson brand.”
Horizon has a long operating history in Alaska, pioneering container shipping into the market in 1964 also under the Sea-Land banner. Horizon deploys three diesel powered Jones Act qualified containerships and operates port terminals in Anchorage, Kodiak and Dutch Harbor. Horizon’s Alaska service consists of two weekly sailings from Tacoma to Anchorage and Kodiak, and a weekly sailing to Dutch Harbor. In addition to the three vessels deployed, Horizon has a reserve steam powered Jones Act containership for dry-dock relief.
Commenting on the acquisition of Horizon Lines’ Hawaii business by The Pasha Group, George Pasha, IV, President and CEO, said: “Since Pasha entered the Hawaii transportation circuit nearly 10 years ago, we have elevated the quality of customer service. With this acquisition, we will supplement that service and provide an improved, more competitive offering on the Hawaii trade lane.”
Pasha added: “First and foremost, Pasha is a full-service transportation company, and as such our primary goal is to enrich the transportation services available to our customers. A decade ago, we introduced the first pure car/truck carrier for the Hawaii-Mainland trade lane, the Jean Anne, in response to customers’ needs. We now look forward to providing Pasha-quality service for even more of the people of Hawaii.”
