C.H. Robinson's $635M buy

C.H. Robinson Worldwide Inc. announced its biggest-ever acquisition Tuesday with the $635 million cash-and-stock purchase of ocean and air transportation firm Phoenix International of Chicago.

Robinson, an Eden Prairie-based transportation firm that matches shippers with cargo carriers, is one of the world's largest third-party logistics companies. But three-quarters of Robinson's 2011 gross profit came from trucking, and only 6 percent from international ocean and air transportation -- markets where Phoenix specializes.

As a result, analysts said, the acquisition will more than double Robinson's ocean and air transportation business, known in the shipping business as "freight forwarding" where a land-based transportation company hands the freight off to an ocean or air transport firm to move the cargo to its international destination.

"This acquisition makes sense strategically because it's a good cultural fit -- both companies have localized branch offices and performance-oriented pay plans," said Matt Young, an analyst at Morningstar in Chicago. "And, while the acquisition will not make Robinson the top provider in freight forwarding, it will give them more scale and credibility."

Robinson's stock rose Thursday on news of the deal, hitting a high of $60.94 per share before closing at $59.04, up 47 cents, or nearly 1 percent, after an unrelated market sell-off.

The acquisition comes at a time when Robinson's bread-and-butter trucking business has slowed due to market conditions, causing the firm's financial results to fall below the 15 percent growth rate for which it aims. Phoenix has been growing more rapidly, and continues to pursue 15 to 20 percent annual growth.

"Robinson has not said that diversification is their goal, but that's what this acquisition signals," said Andy Adams, a mutual fund portfolio manager at Mairs and Power in St. Paul, which owns Robinson stock. "And they're buying a company that's growing faster than they are, which we're happy to see. While Phoenix is growing 15 to 20 percent on its own, they might grow even faster when they're backed by Robinson's capital and resources."

But the amount of diversification the deal represents is modest, said Ben Hartford, an analyst at Robert W. Baird & Co. in Milwaukee. "This will help Robinson diversify from its core truck business, but the truck business will still account for over two-thirds of the company's gross profit."

Price 'not unreasonable'

Analysts generally agreed that the price Robinson paid for Phoenix was reasonable. Robinson said it will acquire the Chicago-based company for $571.5 million in cash and approximately $63.5 million in newly issued C.H. Robinson stock.

"The price Robinson paid for Phoenix reflects that it was a competitive bidding situation with a healthy valuation multiple," Hartford said. "But the price is not unreasonable if the acquisition helps Robinson expand in international freight forwarding."

Robinson is by far the larger firm, with $10.3 billion in 2011 revenue compared to $1 billion for Phoenix. Still, analysts expect the acquisition to be accretive to Robinson's earnings in 2013.

Privately owned Phoenix operates in 15 countries and serves 15,000 customers with forwarding services including ocean, air and custom brokerage. It has 2,000 employees and had gross revenue of $807 million and adjusted operating income of $48 million in the fiscal year ended in June. In a statement, Robinson said the deal will close in the fourth quarter.

The deal marks Robinson's second acquisition of the month. On Sept. 7, Robinson acquired freight firm Apreo Logistics S.A. of Warsaw, Poland, which provides various truckload services, as well as additional warehouse space and air and ocean services, to about 2,000 customers. Terms of that deal were not announced.

"Phoenix is a high-quality growth company that brings additional expertise and scale to a key part of our long-term growth strategy," John Wiehoff, C.H. Robinson chairman and chief executive officer, said in a statement.

In a conference call with investment analysts, he said the company plans "no meaningful people reductions" as a result of the acquisition. In a statement, he said Phoenix has "a talented management team and excellent people, and a performance-based company culture that is very similar to Robinson's."

Bill McInerney, executive chairman and founder of Phoenix, plans to retire, the statement said. Other key Phoenix executives will assume management positions with C.H. Robinson. Phoenix CEO Stéphane Rambaud, 48, will lead the combined international freight forwarding services of C.H. Robinson and Phoenix.

"It was our top priority to ensure that Phoenix be acquired by an organization that is strongly positioned for success, while sharing similar cultural values of service and performance," McInerney said.

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