Inland tank barge giant Kirby Corporation (NYSE:KEX) is going coastal. It has entered a definitive agreement that will see coastwise tank barge operator K-Sea Transportation Partners L.P. (NYSE:KSP) become a wholly-owned Kirby subsidiary. K-Sea says that its management team will continue to run the day-to-day operations of the coastwise business after completion of the transaction.
The merger agreement was unanimously approved by K-Sea’s Board of Directors, acting upon the unanimous recommendation of its conflicts committee.
Under the terms of the agreement, K-Sea’s common unitholders will have the right to elect to receive either (a) $8.15 in cash; or (b) $4.075 in cash plus 0.0734 of a share of Kirby’s common stock for each common unit. K-Sea’s preferred unitholders will receive $4.075 in cash and 0.0734 of a share of Kirby’s common stock for each preferred unit. K-Sea’s general partner will receive $8.15 in cash for each general partner unit and $18 million in cash for K-Sea’s incentive distribution rights.
The transaction price of $8.15 per K-Sea common unit is a 26 percent premium to the closing price on Friday, March 11 and a 38 percent premium to the 30-day average closing price. The equity in the transaction is valued at approximately $335.3 million based on approximately 38.9 million units outstanding, and is expected to close in the second or third calendar quarter of 2011.
Kirby says the total value of the transaction is approximately $600 million, consisting of $335 million for K-Sea’s equity and the refinancing of $265 million of K-Sea debt. Kirby will finance the deal through a combination of available cash, borrowing under Kirby’s revolving credit facility, a new bank term loan of up to $540 million and the issuance of Kirby common stock. The closing of the transaction is expected to occur in June or July 2011 s.
K-Sea’s fleet, comprised of 58 tank barges with a capacity of 3.8 million barrels and 63 tugboats, operates along the East Coast, West Coast and Gulf Coast of the United States, as well as in Alaska and Hawaii. K-Sea’s tank barge fleet, 54 of which are doubled hulled, has an average age of approximately nine years and is one of the youngest fleets in the coastwise trade. K-Sea’s customers include major oil companies and refiners, many of which are current Kirby customers for inland tank barge services. Headquartered in East Brunswick, New Jersey, K-Sea has major operating facilities in New York, Philadelphia, Norfolk, Seattle and Honolulu.
Joe Pyne, Kirby’s Chief Executive Officer, commented, “We are very pleased to announce our agreement with K-Sea subject to their unitholders’ approval. K-Sea is uniquely well positioned within the U.S. coastwise tank barge business, and will be a terrific complement to Kirby’s existing inland tank barge transportation service. With one of the youngest and largest fleets in its sector, K-Sea stands to benefit from the retirement of older tank barges in the coastwise trade, so we believe that the timing of this transaction is very favorable. K-Sea is a great foundation from which to expand our liquid transportation business into the U.S. Jones Act coastwise trade and better serve our customers. K-Sea has a very strong management team led by Tim Casey, great customer relationships, and a good operating reputation in the industry. The Kirby management team looks forward to working with Tim Casey and his management team as we continue to grow Kirby and enhance our shareholders’ value.”
Mr. Pyne further commented, “We expect the positive earnings impact from K-Sea on our 2011 results will be offset by one-time transaction fees of approximately $.05 per share. Accordingly, our guidance for 2011 remains in the $2.55 to $2.80 per share range. Projected full calendar year 2011 revenues for K-Sea are anticipated to be in the $240 to $280 million range. Assuming a closing in July, anticipated revenues for Kirby from K-Sea’s operations would be in the $130 to $150 million range. For 2012, we expect a positive contribution to earnings from K-Sea’s operations.”
March 14, 2011