Verizon buyer
selling Horizon

The Carlyle Group investment firm
said it will sell Hawaii shipper
Horizon Lines for $650 million

Details on Horizon Lines buyer

Castle Harlan is buying Hawaii shipper Horizon Lines from the Carlyle Group:

What >> Private merchant bank based in New York
Founded >> 1987
Focus >> Buyouts of mid-sized corporations with significant potential for growth
Facts >> Has completed more than 60 acquisitions in excess of $7 billion; boasts a compound return of 38.5 percent on its investments

The Carlyle Group said yesterday that it will sell Horizon Lines, one of the market leaders in Hawaii-mainland shipping, to private-equity firm Castle Harlan for $650 million -- more than double what Carlyle paid for Horizon just last year.

It was the second deal with Hawaii repercussions in a week for the Carlyle Group, a high-powered Washington, D.C., investment firm that announced on Friday it would purchase local phone carrier Verizon Hawaii for $1.65 billion.

North Carolina-based Horizon Lines serves Hawaii, Alaska, Guam and Puerto Rico, and is the main rival to Matson Navigation Co. in Hawaii ocean shipping. Its is one of the nation's largest ocean transportation companies, with 16 vessels providing transport and logistics services.

Marcel Fournier, managing director of New York-based Castle Harlan, said Horizon Lines would see "no immediate changes" that would impact customers or employees.

The attraction

"We were drawn to it because it is already such a solid, well-established business with outstanding management," he said, crediting the Carlyle Group with positioning Horizon for "exciting growth prospects."

Horizon Lines Chairman and CEO Chuck Raymond said the company's revenues have been growing at a compounded annual rate of 5 percent for the past 10 years. He said Horizon plans to continue a strategy of reinvestment in its operations that has resulted in the construction of an additional crane at Sand Island and the purchase of additional stevedoring and refrigeration equipment.

The Carlyle Group bought Horizon from Virginia-based rail-transport company CSX Corp. in February 2003 for $300 million when it was still known as CSX Lines and changed the name. The company began West Coast-Hawaii ocean freight service in 1987 as Sea-Land Service.

Carlyle Group spokesman Chris Ullman said the equity firm, which has $18 billion under management, decided to sell Horizon Lines so soon due to Carlyle's quick success in turning it into a stand-alone shipping company. Just one and a half years after Carlyle bought it, Horizon Lines is already about to surpass a five-year goal for earnings, Ullman said, though he provided no figures.

"And that's been during a weak economic period. Imagine how well the company can do during better times. That's been a key selling point," Ullman said.

He said Horizon's hefty mark-up reflected that success and improvements in U.S. capital markets which have made it easier for Castle Harlan to leverage a deal.

Leaving their mark

Carlyle's legacy was to leave the shipping line more focused on cash flow, said Brian Taylor, vice president and general manager for Horizon Lines' Hawaii-Guam routes.

"That was a major, positive change for us. It gave us a standard by which to measure ourselves," said Taylor, who spent yesterday answering calls from Horizon Lines customers wondering how the deal would affect the carrier.

He said Horizon Lines' three main markets -- Alaska, Hawaii-Guam, and Puerto Rico -- each account for about one-third of the company's total business. He added that the company's business has been growing steadily, a combination of a growing overall pie and by cutting into Matson's market share.

Mark Teruya, president of food distributor Armstrong Produce, said Horizon Lines has remained a steady performer through its various incarnations with service levels that are on a par with Matson's, though the latter offers four mainland arrivals a week to Horizon's two.

Teruya said it's vital that Horizon's new owners continue to improve the company's good performance. "That will be good for the whole state," he said.

A Matson spokesman had no comment on the deal.

Ullman said the Carlyle Group's Verizon Hawaii and Horizon Lines deals were completely unrelated.

"It's an interesting coincidence that they happened within a couple of days, but these deals are totally independent and unrelated," he said.

He said the Carlyle Group, which counts such heavy hitters as former President George H.W. Bush and other Washington power players as senior advisors, normally holds onto the companies for three to seven years. However, he sought to allay suggestions that Carlyle's Verizon Hawaii investment was aimed at turning a quick profit.

"The Verizon deal is a much longer-term type of investment. We're firmly committed to being in the Verizon investment for years to come," he said.

Castle Harlan prefers to work with the management of the companies it buys. It has 32 companies in its portfolio, ranging from Adobe Air to Morton's Restaurant Group.


New Horizons

Here is a timeline of key events in Horizon Lines' history in Hawaii:

1986 >> Railroad company CSX Corp. buys container shipping firm Sea-Land Corp.
1987 >> Sea-Land buys the Hawaii-Guam routes of shipping company U.S. Lines and operates them as Sea-Land Service Inc.
2000 >> CSX Corp. sells most of Sea-Land Corp., but retains Sea-Land Service, renaming it CSX Lines.
2003 >> CSX Corp. sells CSX Lines to the Carlyle Group, a private-equity firm, for $300 million. The shipping company is renamed Horizon Lines.
Yesterday >> The Carlyle Group announces it has sold Horizon Lines to investment firm Castle Harlan for $650 million.


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