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CSX sells shipping unit
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July 22, 1999: 2:49 p.m. ET
Sea-Land international operations sold to Danish conglomerate for $800M
By Staff Writer Allen Wastler
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NEW YORK (CNNfn) - CSX Corp., ending months of speculation Thursday, confirmed it is selling its international shipping unit to A.P. Moller Group, a Danish shipping conglomerate, for $800 million.
CSX also released earnings that fell a penny short of Wall Street expectations. The loss was chalked up to the cost of absorbing a new rail system into its network.
CSX's shipping operation is called Sea-Land Service Inc. Moller, through its A.P. Moller-Maersk Line unit, will acquire Sea-Land's international liner business including vessels, containers, and related container terminals.
Sea-Land, the largest U.S. shipping line, operates approximately 70 container vessels and about 200,000 containers in its international trade routes.
"If you look at it from a shareholder perspective, it's a good short-term move, since there is a difficult container shipping market now and it makes CSX a pure rail play," said Jim Winchester, an analyst at Lazard Freres. "Five years from now, when container shipping goes through its cycle, there may be second thoughts. But given what's going on now, sure, it's a good move."
Economic problems in Asia have led to shipping imbalances on Pacific shipping routes. Ships and containers used to bring over a flood of imports aren't getting export shipments to offset the costs of a return trip. As a result, carriers' costs are increasing and their bottom-line results are getting hurt.
In addition, a glut of ship capacity on the Pacific has kept shipping prices, even for imports, relatively low.
"Sea-Land is a good company in a crummy business," said Doug Rockel, an analyst with ING Barings. "There are wild cycle swings and the competition is not really on a level playing field, since foreign governments often subsidize their carriers…CSX is getting a good price, considering."
The agreement was touted by both parties as a natural development of their current partnership, through which they share vessels and terminals. The new combined services will be marketed under the name Maersk-SeaLand.
"Sea-Land and Maersk are already de facto merged," said Rockel. "A lot of the synergies are already there. This is just a financial completion."
Sea-Land ships will belong to Maersk
"The operation and management will be fully integrated, drawing on the best from both organizations," said Ib Kruse, an A.P. Moller partner. "Maersk-SeaLand will offer a wide range of services, unmatched in the industry, for the benefit of our customers worldwide."
"For CSX, this is a significant opportunity to enhance shareholder value and refocus our maritime resources on our well-positioned domestic container shipping business and terminal management operations," John W. Snow, chairman and chief executive officer of CSX Corp. (CSX), said.
Domestic container shipping to and from Alaska, Hawaii, Puerto Rico and Guam, as well as certain terminal facilities -- including facilities in Hong Kong - aren't included in the agreement and will remain under CSX ownership.
The acquisition is subject to due diligence and approvals from authorities. CSX and A.P. Moller expect it will take approximately four months to finalize the transaction.
CSX Corp., based in Richmond, Va., acquired Sea-Land in 1986. CSX, which recently absorbed half of the Conrail system, operates the largest rail network in the eastern United States. In its second-quarter earnings, also announced Thursday, CSX intimated that Sea-Land's international business had been a drag on earnings.
CSX reported second-quarter net earnings of $114 million, 53 cents per share. In the prior-year period, the company earned $151 million, or 70 cents per share.
Although the company didn't specifically break out the number, CSX had operating earnings of 45 cents per share, according to First Call. Analysts polled by First Call anticipated second-quarter diluted operating earnings of 46 cents per share.
Problems absorbing Conrail
"Not unexpectedly, we encountered some rough spots early in this highly complex undertaking, and expenses were higher as we fine-tuned our operating plan and information systems," Snow said. "Importantly, our plans are working, and we are concentrating now on bringing service on the acquired property to the level our customers expect. We should be well prepared for peak traffic demand in the fall."
For the first six months of the year, CSX earned $189 million, or 89 cents per share. The six-month results exclude an adjustment for the cumulative effect of adopting new accounting guidelines for workers compensation second injury fund assessments that reduced first-quarter net earnings by $49million, or 24 cents per share. In the prior-year period, the company earned $242 million, or $1.12 per share.
CSX stock was down 1-9/16 at midday Wednesday to 48-3/8. 
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