NEW YORK (CNNfn) - CSX Corp., an international shipping company that is one of the last big conglomerates in the transportation industry, has agreed to sell two-thirds of its barge interest for $850 million in order to better focus on its core railroad business.
The move, in some industry watchers' view, may presage further divestitures to come as CSX tries to pare a portfolio stuffed with holdings ranging from Grand Teton Lodge Co. to Sea-Land Service Inc., an air- and sea-cargo shipping unit.
Shares of Richmond, Va.-based CSX were trading unchanged Monday at 56-15/16 on news that the company planned to convey American Commercial Lines to a venture formed with Vectura Group Inc. for $695 million in cash and $155 million in securities.
Under the transaction, National Marine Co., a wholly owned subsidiary of Vectura, will combine with ACL, of Jeffersonville, Ind., to create a new company with total assets of about $1 billion.
CSX, however, will retain a 34 percent stake in the venture.
In partially shedding ACL, CSX is ceding a marine company whose 140 towboats and 3,800 barges ply inland waterways in the United States and abroad, providing a wide range of maritime shipping services.
Yet those same operations also have, in some analysts' view, siphoned business from CSX.'s railroad unit at a time of increasing tumult in that sector.
By relinquishing its control of ACL, CSX is, in effect, coming to terms with a legacy of acquisition fever that began in earnest in the wake of deregulation nearly two decades ago, when the vogue in the transportation industry was portfolio diversification.
A race to pare portfolios
More recently, with the growing emphasis on cost efficiencies spurred by cut-throat competitive pressures, the opposite trend has taken hold.
"I think it just shows that there are fads and fashions that come and go in the transportation industry as in any industry," said Stephen Klein, an analyst with Standard & Poor Equity Group.
CSX's purchases have left it with a vast array of rail, intermodal, ocean container shipping, barging, trucking and contract logistics services that some describe charitably as unwieldy at best. To others, the businesses represent dead weight on the balance sheet.
"This transaction could be viewed as a precursor to a possible sell-off of Sea-Land," said Carole Neely, an analyst at Brown Brothers Harriman. "However, I thought there would have been a more favorable reaction."
Neely surmised that by failing to go all the way and fully divesing the ACL unit, CSX may have dampened investor enthusiasm for the move.
"Although I feel this is positive for the stock, I think the impact would have been more favorable had they sold their entire interest," Neely said.
Klein said he believed that CSX may have "missed the peak" for fetching a premium price for the barge unit, whose business has slumped in the past six to 12 months.
Yet the sale also comes at a time when CSX is struggling to ease a debt burden associated with a partial buyout of Conrail Corp. last year. That, coupled with fallout from the Asia crisis and a generally lackluster earnings quarter for the railroad industry, has only compounded the difficulties.
A bumpy bid for Conrail
Initially, CSX had hoped to buy Conrail outright for $8.4 billion. But that bid hit a stumbling block early last year when rival railroad operator Norfolk Southern Corp. weighed in with a hostile takeover bid valued at $10.3 billion. Conrail shareholders subsequently rejected the lower CSX bid.
Ultimately, CSX agreed to pay $4.1 billion for a 42 percent stake in Conrail. But that deal is still subject to regulatory approval.
The new ACL company will operate the largest inland waterway fleet, including more than 4,500 barges and 195 towboats.
John Snow, CSX's chairman and chief executive officer, said the combination with National Marine marks an "exceptional outcome" for ACL. For CSX, Snow said, the deal will allow it to maintain a toehold in the inland waterway business at less expense.
"Completion of this transaction strengthens our balance sheet, increases shareholder value and allows us to focus more of our energies on our core railroad business," Snow said.
"This," he added, "is an especially important priority as we move toward conclusion of the review and approval process of the Conrail transaction and the integration of Conrail lines into our rail system.
The new emphasis on the rail unit, some say, comes not a moment too soon. Last September, a jury in New Orleans returned a $2.5 billion punitive damages award against the unit in a civil suit filed by 8,000 residents of a New Orleans neighborhood.
The plaintiffs lodged their claims after a CSX railroad car carrying a flammable gas leaked, emitting vapors that ignited a two-day fire in the neighborhood.
The company has felt further financial pressures as it waits for final approval of the Conrail deal. For the time being, Klein noted, CSX owns only Conrail shares, and not the actual railroad track, which means the company has experienced so far only the downside of the transaction and none of the anticipated benefits.
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