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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| K-Sea Transportation Partners Lp | NYSE:KSP | NYSE | Ordinary Share |
| Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 8.14 | 0.00 | 00:00:00 |
| • | Kirby’s ability to achieve the synergies, efficiencies and value creation contemplated by the proposed transaction; | ||
| • | Kirby’s ability to promptly and effectively integrate the businesses of Kirby and K-Sea; | ||
| • | the time required to consummate the proposed transaction and any necessary actions to obtain required regulatory approvals; | ||
| • | the diversion of management time on transaction-related issues; | ||
| • | competition in the markets served by K-Sea or Kirby; | ||
| • | unanticipated tax consequences of the transaction; and | ||
| • | the possibility that the transaction will not close because of the failure to satisfy the closing conditions or other reasons. |
| Operator: |
Welcome to the Kirby Corporation Acquisition of K-Sea Transportation Conference Call. My name is Sandra, and I
will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we
will conduct a question-and-answer session. Please note that this conference is being recorded.
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I will now turn the call over to Mr. Steve Holcomb. Mr. Holcomb, you may begin.
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| G. Stephen Holcomb: |
Thank you for joining us this morning. With me today is Joe Pyne, Kirby’s
Chief Executive Officer; David Grzebinski, our Chief Financial Officer; and Greg Binion,
President of Kirby Inland Marine, our marine transportation subsidiary.
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During this conference call, we may refer to certain non-GAAP or adjusted
financial measures. A reconciliation of the non-GAAP financial measures to
the most directly comparable GAAP financial measures is available on our
website at kirbycorp.com in the Investor Relations’ section under Non-GAAP
Financial Data. Statements contained in this conference call with respect
to the future are forward-looking statements. These statements reflect
management’s reasonable judgment with respect to future events.
Forward-looking statements involve risk and uncertainties. Our actual
results could differ materially from those anticipated as a result of
various factors. A list of these risk factors can be found in Kirby’s
Annual Report on Form 10-K for the year ended December 31, 2010, filed with
the Securities and Exchange Commission.
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I will now turn the call over to Joe.
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| Joseph H. Pyne: |
Okay. Thank you, Steve, and thank you for joining us this
morning. We’re very pleased to announce our agreement
with K-Sea. We have known K-Sea since they were founded
and have admired what they’ve accomplished. In many
respects, they’ve expanded their service footprint much
the same way Kirby has. More recently, they have faced
some market challenges — oversupply of capacity and
decline in demand. This is correcting itself, and we
believe that this is a very good time to enter this
business.
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For those of you who do not know K-Sea, they are one of
the largest coastwise tank barge operators in the United
States, in fact the largest for coastwise barges of
150,000 barrels or less. Like Kirby, who operates on the
entire inland waterway system, K-Sea operates on the East,
West, and Gulf Coast, as well as
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in the Great Lakes and in Alaska and Hawaii. The business is providing
coastal tank barge service for refined products, which they transport.
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Now K-Sea principal customers are U.S. refiners, many of which are also
Kirby customers. Products transported by K-Sea include gasoline, heating
oil, No. 6 oil, diesel oil, as well as ultra load sulfur diesel, ethanol jet
fuel, Avgas, crude oil, feedstocks, lube oil, and biodiesel, now many of the
products that Kirby also transports.
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K-Sea’s fleet consists of 58 tank barges and 63 towboats. Of the 58 tank
barges K-Sea operates, 54 are double hauled with an average age of nine
years, and this fleet is one of the youngest fleets in the coastwise trade.
Four of K-Sea’s tank barges are single skin, three of which are schedule to
be operated through 2014 and one of which is for sale. All single haul
vessels must be phased out by the end of 2014. Most will leave earlier as
they approach their final shipyard. K-Sea’s 63 towboats range from
approximately 1,000 horsepower to 11,000 horsepower. Currently K-Sea has
some excess horsepower. After our due diligence inspection, we consider
K-Sea’s fleet to be in very good condition and comparable to the operating
standards of Kirby’s inland tank barge and towboat fleet.
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Over the years, K-Sea has become a large player in the coastwise tank barge
market by consolidating the less than 185,000 barrel coastwise tank barge
business in much the same way that Kirby continues to consolidate the inland
tank barge business. Furthermore, K-Sea has established the best geographic
presence of any coastwise Jones-Act operator with operations, as I
mentioned, on all three coasts and in Alaska and Hawaii. For the last 12
months, K-Sea’s
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revenue by region are approximately 41% East Coast, which includes New York
Harbor and the Eastern Seaboard, 13% Gulf Coast, 17% West Coast, 16% Alaska,
9% Hawaii, and 4% other regions.
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The total consideration for K-Sea is approximately $600 million. Before post
closing adjustments and fee and consist of approximately
135 million — excuse me, 335 million per K-Sea’s equity and refinancing 265 million of
K-Sea’s debt. K-Sea’s common and preferred unitholders will receive $8.15
per unit in consideration in the form of cash and Kirby common stock.
K-Sea’s common unitholders will have the choice of receiving for each common
unit either $8.15 in cash or $4.075 in cash and a 0.0734 of a share of Kirby
common stock. The preferred unitholders will receive for each preferred unit
$4.075 cash and 0.034
[sic]
of a share of a Kirby common stock. The K-Sea
general partner will receive $8.15 in cash for each general partner unit and
$18 million in cash for its incentive distribution rights.
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The K-Sea transaction will be financed through a combination of available
cash, borrowing under our revolving credit facility, Kirby common stock, and
unsecured term loan of up to $540 million unwritten by — underwritten by
three bank — Wells Fargo, Bank of America, and J.P. Morgan — and syndicated
to a broader group of lenders. We believe that even with the addition of
the new debt, we should be able to maintain our investment grade ratings due
to our ability to generate cash and quickly pay down our debt.
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The strategic fit and complementary nature of Kirby’s and K-Sea’s business
provides an exciting opportunity to combine the two operations, enhancing
Kirby’s footprint to include the U.S. coastwise tank barge transportation
market.
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K-Sea is the perfect complement to our inland tank barge operation. We have
followed K-Sea for a long time and we believe that this is a unique
opportunity for Kirby. In many respects, K-Sea is the coastwise equivalent
of Kirby Inland Marine as they operate in multiple geographies, have a great
reputation, have a strong and highly experienced management team, and have
excellent long-term customer relations. Tim Casey and his team have
developed and earned over the years a great reputation delivering barge
services to their customers, operating a safe and well maintained fleet, and
have worked hard on behalf of their shareholders and stakeholders. We look
forward to welcoming Tim and his team to Kirby and working with them to grow
our business.
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K-Sea is currently a Master Limited Partnership whose investors want cash
distributions. The pressure of cash distributions limit K-Sea’s ability to
time capital needs and acquisition opportunities, especially in uncertain
economic times or in unfavorable market conditions. With K-Sea operating
under the Kirby Corporate structure, we will be better able to take
advantage of both internal and external growth opportunities in K-Sea’s
markets as such opportunities arise than certainly their current MLP
structure allows now.
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The outlook for the U.S. coastwise tank barge business is improving. U.S.
fuel consumption, the primary driver of K-Sea’s revenues, has improved from
the 2009 low consumption levels and is expected to grow during 2011 and
2012. Same time, the supply demand balance in K-Sea’s market is
strengthening as single haul tank barges are phasing out of service under
OPA 90 and new construction is slowing. Currently, about 10% of the overall
Coast Guard market capacity is single haul vessels that will either be
phased out at their next required dry dock, but certainly not later than the
end of 2014. In addition, new
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construction in K-Sea’s market is projected to be minimal the next couple
years, with lead times for delivery of new vessels being approximately 15
months, if somebody was to order today. So importantly, K-Sea’s rate
environment is also showing some signs of improvement from their lows in
2009 and should improve as equipment utilization continues to improve.
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We expect the positive earnings impact of K-Sea on our 2011 results will be
offset by one-time transaction fees of approximately $0.05 per share. For
2012, we expect the purchase to be accretive in the high-single digit to
low-double digit per share range. The acquisition of K-Sea will result in
certain synergies, such as the elimination of K-Sea’s publically traded
company costs, the reduction of audit and tax fees, and insurance costs.
We believe that over time additional synergies will be obtained as we work
with the K-Sea management team to find the appropriate ones.
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Just to keep you up-to-date on the other acquisitions that we’ve made this
year, we have closed on our purchase of Enterprise’s ship bunkering
operation on February the 24th. Our acquisition of United Holdings, a
distributor and service provider of engine and transmission-related products
for the oil and gas industry, service industry, power generation, and
transportation industries, as well as the manufacturer of oil service
equipment, which we announced February the 21st, is on schedule to close in
early April.
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Plus, I want to take this opportunity to update you on Kirby’s first
quarter. The quarter has been challenging due to principally bad weather
and high water. During the month of February, we incurred twice as many
weather delays as we incurred in February last year; and in March, we’ve had
a number of fog delays
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along the Gulf Coast, as well as generally high water on the Mississippi
River System. Even with these difficult operating conditions, we are
reconfirming our first quarter guidance of $0.56-to-0.61 per share.
Currently, our fleet is very busy. It is difficult to determine how much of
the improvement in utilization is from additional volumes versus weather
issues, but we sense that there’s some additional volumes. The fundamentals
of the inland tank barge market appear to be continuing to improve, and this
should be very encouraging to everyone.
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Operator, we’ll go ahead and open the conference call to questions now.
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| Operator: |
Thank you. We will now begin the question-and-answer session. If you have a question, please press star
then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or
the hash key. If you’re using a speakerphone, you may need to pick up the handset first before pressing
the numbers. We ask all callers to please limit themselves to one question and one follow-up question.
Once again, if you have a question, please press star then one on your touchtone phone.
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The first question is from Sachin Shah from Capstone Global Markets. Please go ahead.
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| Sachin Shah: |
Hi. Good morning. Just wanted to find out in regards to completion of the transaction, aside from
shareholder vote and HSR, are there any other regulatory approvals there needed here to complete the
transaction?
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| Joseph H. Pyne: |
Yeah. No, those are the regulatory approvals.
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| David W. Grzebinski: |
Yeah, we will have to file an S-4 with the SEC, which could take some time, depending on their comments.
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| Sachin Shah: |
Okay. So any idea of when that may be filed, the preliminary S-4?
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| David W. Grzebinski: |
The exact timing’s still influx, but as soon as possible. That’s all I can tell you.
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| Sachin Shah: |
Okay. You mentioned in the release that there is a support agreement. Any idea of what that percentage
support agreement is for? How many shareholders are...
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| Joseph H. Pyne: |
It represents over 50%.
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| Sachin Shah: |
Okay. So you... Does that mean that you’re not going to hold a shareholder vote or still will hold a
shareholder vote?
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| Joseph H. Pyne: |
There will be a shareholder vote and those shares will be voted.
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| Sachin Shah: |
Okay. So the support agreement is for an excess of 50%?
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| Joseph H. Pyne: |
It is, yes.
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| Sachin Shah: |
Okay, thank you very much.
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| Operator: |
The next question is from Alex Brand from Sun Trust Robinson. Please go ahead.
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| Sterling Adlakha: |
Good morning. This is Sterling in for Alex.
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| Joseph H. Pyne: |
Good morning.
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| David W. Grzebinski: |
Good morning, Sterling.
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| Sterling Adlakha: |
Joe, can you help us understand what the potential is in pricing? Is there an ability or a potential to
raise price in the GCIW business given the coastwise business that K-Sea is adding?
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| Joseph H. Pyne: |
Sterling, they’re different businesses and priced differently. What the K-Sea addition will allow us to
do is offer a coastal service. There’s very little competition between coastal and inter-coastal so...
But you do have customers that have both requirements, so this will allow us to do both.
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| Sterling Adlakha: |
So you’re saying, Joe, that there may be some... Now that you... Especially with the customers that you
share currently with K-Sea, you control a little bit more of their supply chain, so you are saying there
may be some ability to have more negotiating leverage with your customers in the inland tank barge market
as well as the coastwise market given the acquisition?
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| Joseph H. Pyne: |
No, and I wouldn’t say that we control anybody’s supply chain. I would say that the K-Sea operation is
complementary to the service that we provide to our inland customers. And if they have offshore
requirements, we’ll be able to take care of those also.
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| Sterling Adlakha: |
Okay thanks, Joe. Can you also talk about not the seasonality but the cyclicality of the business that
you’re adding? Does this increase the cyclicality of Kirby’s
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overall business? How do you think about that and how would you address that
concern as people look at how you’re applying cash for this acquisition
versus other potential uses of cash such as a buyback?
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| Joseph H. Pyne: |
Well I don’t... Cyclicality is driven by really supply demand fundamentals in the transportation business.
I think that what’s encouraging about the coastal trade is that most of the single skin replacement is
behind it and the timing of double skin barges coming into the market as they replaced single skins wasn’t
perfect; and as that happened, of course we had the 2000 — late 2008/2009 market collapse. So as we move
forward, I think the fundamentals of that business are going to get better.
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Sterling, I —
what was the latter part of your question?
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| Sterling Adlakha: |
How would you or how would management overall view an acquisition of this sort versus a share buyback? How
do you think about the advantages of this?
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| Joseph H. Pyne: |
There are places in a company’s history where you look at a range of opportunities from buying back your
shares to adding capacity to buying assets, and what we’ve been saying really for the last six months to a
year is that we thought the environment for acquisitions was continuing to get better and that our focus
was going to be on that. Having said that, there are periods where your stock price is attractive and
you’re going to buy it. We were buying stock kind of middle of last year. And over my tenure as the CEO,
Kirby, we bought back over 21 million shares. It... I think a company needs to look at all those things
opportunistically and make the best decision based on what they see in those
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areas. I don’t think it’s necessarily an either/or, but I do think that there are periods that favor one of the three things I just
mentioned.
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| Sterling Adlakha: |
Great.
Thanks, Joe. If I could just one last one. Can you give us any parameters about —
around the
size and the age of the industry fleet, again, the — just the coastwise tank market?
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| Joseph H. Pyne: |
You know what, Sterling, I had that information in front of me. I can just say that the K-Sea fleet’s one
of the younger fleets.
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| Sterling Adlakha: |
Okay thanks, Joe. Appreciate the time.
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| Operator: |
Thank you. The next question is from Todd Maiden from RBC Capital Markets. Please go ahead.
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| Todd Maiden: |
Thank you. Good morning, guys.
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| Joseph H. Pyne: |
Good morning.
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| Todd Maiden: |
A couple things. One, you touched on synergies from this deal. Of the 150 shore staff, I mean do you see
any synergies there?
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| Joseph H. Pyne: |
I think it’s too early to get into that. We... We’ll be working with Tim Casey and his management team on
what, if anything, you do there. The synergies that we’ve priced into this model are more public company
synergies and some insurance synergies and we’ll —
as we get to know the organization and as we visit
with the management team, we’ll see what else is there.
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Okay. As far as
their capex plans, could you walk through K-Sea’s capex plans and just
your plan — how
your plans mirror that or... I mean are you going continue with what they have planned?
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| David W. Grzebinski: |
Yeah, their capex plans are in the range of 20-to-25 million a year and usually that’s related to dry
dock
— capitalizing some dry docking expense. They do have some repowering and maybe some options to pursue a
little bit of growth, but right now that’s fairly minimal. They do have a very young fleet and, as Joe
mentioned, the market’s still coming into supply demand balance. So there’s not much in the way of
expansion capex, it’s really maintenance capex for now.
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| Todd Maiden: |
And then last
question. Are there any — have you been able to target any non-core assets within K-Sea
that you could put up for sale?
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| Joseph H. Pyne: |
They have some excess power that is for sale. I wouldn’t say they have any non-core assets.
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| Todd Maiden: |
All right. As far as any idea of the percentage of that excess power that’s going to be up for sale?
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| Joseph H. Pyne: |
You know it’s in the... In terms of what we think it’s worth?
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| Todd Maiden: |
No. That’s fine, but in terms of the size of their fleet.
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| Joseph H. Pyne: |
Well they have 63 boats and 58 barges, yeah, there is some excess power in that number. And as we
indicated, there’s one single skin barge for sale.
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I’m not sure what you’re trying to ask for.
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| Todd Maiden: |
I was just seeing of the horsepower for sale, I mean have you identified X number of vessels or tugs or is
that too early in the process?
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| Joseph H. Pyne: |
No, they have some power for sale.
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| Todd Maiden: |
Okay. All right, great. Thank you, guys.
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| Operator: |
Thank you. The next question is from Jimmy Gibert from Iberia Capital Partners. Please go ahead.
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| Jimmy Gibert: |
Hi, Joe. Jimmy Gibert at Iberia Capital Partners.
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| Joseph H. Pyne: |
Hi, Jimmy.
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| Jimmy Gibert: |
The... You guys have a very extensive and impressive operation center in Houston. These guys at K-Sea
have an operations center too, I’m sure. Would you be consolidating those operations and just go with... I
mean can you run their East Coast operations out of your operations center in Houston?
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| Joseph H. Pyne: |
We’re
not prepared to comment on that. They have a... Their principal operation is in New Brunswick, New
Jersey, with operations on Staten Island and then other places around the country, on the Coast to
servicer business, but I think it’s far too early to
comment on that. The intention is — at this point
is to leave them where they are.
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| Jimmy Gibert: |
Okay. An also you
mentioned this quarter... I thought I might ask this about your — the diesel
maintenance business along the Gulf of Mexico. There were two... There now have been two permits issued
for deepwater drilling. Have you guys heard any inquiries from your customers about maybe we should start
ramping up some of these boats that have been idle?
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| Joseph H. Pyne: |
Around the edges, I think that the Gulf... And you’re even closer to it than we are, but I think that the
Gulf Coast customers are still a little skeptical with respect to what the administrations’ intentions
are. Certainly the one new permit and then the past permit was just permitting a company that was
drilling to continue to drill. I think they want to see a little bit more action there before there’s too
much more enthusiasm.
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| Jimmy Gibert: |
Right. Well, there was another one issued on late Friday. Of course you’ve been busy with this
acquisition, I’m sure, but BHP...
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| Joseph H. Pyne: |
Yeah, that was
the one that... Really what it was, Jimmy, was — at least as I read it, was that they
were drilling and they’ve allowed to go back and finish the well.
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| Jimmy Gibert: |
Right. Okay. That’s all the questions I had... Oh, I did have one more question. If you guys are
reaffirming your guidance with twice as many delay days and some fog issues and some high water issues, is
it safe to say that without those, you probably would’ve come in in this quarter ahead of guidance?
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| Joseph H. Pyne: |
I don’t want to comment on that.
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| Jimmy Gibert: |
Okay thank you very much, Joe.
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| Joseph H. Pyne: |
Thank you.
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| Operator: |
Thank you. The next question is from Dan Moore from Scopus. Please go ahead.
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| Dan Moore: |
Good morning.
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| Joseph H. Pyne: |
Good morning.
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| Dan Moore: |
Joe, just real quick, the NOLs... My understanding is K-Sea was set up as a Master Limited Partnership. I
presume the NOLs wouldn’t follow you in this transaction. Is that accurate?
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| David W. Grzebinski: |
That’s correct. We’ll be treating this as an asset purchase.
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| Dan Moore: |
Okay, fair enough. And then I’m just not that familiar with K-Sea. I was wondering if you could maybe
expand a little bit on how you’re thinking about the business in the context of volume and pricing cycle.
I know you kind of discussed that you feel like we’re more or less at the bottom, but could you give us a
sense for —
without having access to a model here today, could you give us a sense for how much
opportunity there is on the volume side relative to their historical figures and where pricing is today
relative to where it might have been three to five years ago?
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| Joseph H. Pyne: |
Yeah, pricing
is down. I think from a model perspective, I think their peak was 2007 and their —
the
bottom was 2010. They had EBITDA margins at their peak around 27/28% and at the bottom around 20/21%, and
we would think that there isn’t any reason why they can’t get back to the peak and maybe a little better.
What I think is encouraging is the —
is that there was a lot of equipment built as people tried to get
ahead of the single skin/double skin issue and the timing wasn’t particularly good so that you had excess
capacity, the market then collapsed of course. But now I think the market is stabilized; you’re going to
have more equipment out, and we should see as we go forward balance similar to what you see in the inland
tank barge business.
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| Dan Moore: |
Fair enough. Thank you.
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| Joseph H. Pyne: |
Great.
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| Operator: |
Thank you. The next question is from Ken Hoexter from Bank of America. Please go ahead.
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| Ken Hoexter: |
Hi. Good morning.
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| Joseph H. Pyne: |
Good morning, Ken.
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| Ken Hoexter: |
Joe, can you just talk about... I know the question before of kind of looking at the overlay, I mean I
don’t know, do you plan on bundling the customers here? Are you going to manage this as a separate
business? I just want to understand, you kind of talked about maybe what potential synergies on the
financial side, but I just want to understand operationally is this something where you acquire but
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you keep it completely separate or is it... I mean I know they’re coastwise
much, much larger vessels, but is this something eventually where when
you’re dealing with the customer, it’s the same customer, so we can start to
— you can start to bundle the service? I’m trying to understand your
thought process in why leaving the transportation market you went outside
and went to the larger vessel instead of kind of continuing to look within
the barge world.
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| Joseph H. Pyne: |
Yeah, well actually, yeah, we operate 180,000 barrel tows
all the time on the inland system, so it... In terms of
the size of tows that we’re operating and the capacity of
those tows, they’re very similar. With respect to market
synergies, this is an extension of our inland service to
offshore requirements and we’ll be working the how we
coordinate the marketing of that out with the K-Sea
management team. This is something that doesn’t have to
be decided today. It... K-Sea has been operating as a —
is in fact a public company since I think 2003/2004.
They’ve been doing it successfully. What we need to do is
kind of sit down and work through these issues so that the
face that we present to the market is the right face with
the right offering.
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| Ken Hoexter: |
So I’m sorry so, Joe, you’re saying you don’t need to
decide right now whether you keep it as a separate or
whether you report it as separately? I’m trying to
understand what you (inaudible)...
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| Joseph H. Pyne: |
Oh, is your
question with respect to reporting or is it...
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| Ken Hoexter: |
I guess both. I want to understand operationally if the
goal here is: This is kind of an extension of your
business so there could be greater synergies. I guess to
the questions before that were asking: Hey, do you fold
in the operations center;
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do you kind of... All the other options I guess really comes down to how
you look at this acquisition as something that blends in well with the core
so that you can blend it operationally in or it really is something that is
so different just because of the kind of service they’re providing that it
needs to stay as a separate entity within the Kirby umbrella.
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| Joseph H. Pyne: |
Yeah, Ken, we have operating offices all over the country. I don’t think
that the location really... You have facilities to accommodate your
operations where you’re operating. In terms of marketing the business, is
your question...
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| Ken Hoexter: |
Yeah, that’s more my question, Joe, is how you’re going to operate it. I
don’t care about the operations center; I’m asking if you’re going to run
it as — like if this is really there are synergistic opportunities here
because you can blend it in or if it really is a completely separate
entity.
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| Joseph H. Pyne: |
Well it’s a... From a location point of view, you’re going to locate your
facilities and operations where your servicing your customers. With
respect to combining sales and accounting and other things, those are
things that we will work out. We’re not prepared to say how we’re going
to do it at this point. What we’re going to do is sit down with the K-Sea
management team and look for ways to capture synergies and efficiencies.
But for me to sit here and say, “Well, we’re going to do this,” I think
it’s far pre mature to do that. I’ll also tell you that in terms of
buying companies and integrating them and consolidating them, we’re pretty
good at that. And one of the things that I think makes us pretty good is
that we don’t come in with a set of assumptions on how necessarily to
operate something. We... Your buying an entity based on kind of what it
brings to the table. You need to fully understand what it does, how it
does it, and how best you
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can combine it or in some cases you don’t combine it at all. Just too early to make that determination.
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| Ken Hoexter: |
That’s a fair point. Joe, if I could just get a follow-up on... I mean
within the past month, you’ve acquired ranging from I guess more larger,
deeper water ocean-going barges — or I guess whatever coastal barges to
refrigerated trailer manufacturers, is this the end of the acquisition
spree for a while would you say?
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| Joseph H. Pyne: |
No, I
wouldn’t say that, and refrigerated trailer manufacturers, I
don’t...
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| Male Speaker: |
(Inaudible).
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| Joseph H. Pyne: |
Yeah, that’s... What that is a cooling unit that’s a very small part of
United’s business. The United acquisition was really focused on — and
most of their business is focused on manufacturing hydraulic fracing units
that then require some significant service, and we’re trying to capture
the service part. So I think that to suggest that that’s significantly
different than what we’re doing now is not correct. With respect to the
K-Sea opportunity, again, we’re already in the offshore business. We have
an entity that operates offshore tugs and barges, so it’s not really a new
thing for us, it’s just an extension of a service that we think that our
customers will frankly be enthusiastic about. We... Our plate is pretty
full. But as I’ve said, as you’ve listened to me, Ken, for a number of
years that acquisitions are opportunistic and you just got to position
yourself to take advantage of those opportunities, and we’ll have to look
at how we handle those opportunities as we see them.
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| Ken Hoexter: |
You definitely got a lot. I mean good luck on this because this one, we’ve
known them in the past, good stuff. But appreciate the time.
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| Joseph H. Pyne: |
Had you followed us in the ‘90s, you would’ve seen that we had a lot back
then too.
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| Ken Hoexter: |
Yeah. No, thanks, Joe. I appreciate the time.
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| Operator: |
Thank you. The next question is from John Larkin from Stifel Nicolaus.
Please go ahead.
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| Joseph H. Pyne: |
Good morning, John.
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| John Larkin: |
Good morning, everyone, Joe, Dave, and Steve.
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| David W. Grzebinski: |
Good morning.
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| G. Stephen Holcomb: |
Good morning.
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| John Larkin: |
Congratulations.
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| Joseph H. Pyne: |
Thank you.
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| John Larkin: |
First one related to your guidance regarding the accretive nature of this deal for 2011, you said
high-single digits to low-double digits. I wasn’t sure whether that was in terms of pennies or percentage.
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| David W. Grzebinski: |
Yeah, John, that was 2012.
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| John Larkin: |
2012.
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| David W. Grzebinski: |
2011 is flat, inclusive of the one-time transaction-related fees.
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| Joseph H. Pyne: |
And that’s cents per share.
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| David W. Grzebinski: |
Correct, yeah.
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| John Larkin: |
Okay. So somewhere like $0.08-to-0.12 is what you are more or less guiding to?
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| David W. Grzebinski: |
Yes, that
would — in that range.
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| John Larkin: |
Ballpark, okay. And then I guess in terms of the integration, it seems to me that the types of vessels
and the types of towboats that are operating in the coastwise business are considerably different in terms
of their engineering and structure and so forth compared to the brownwater barges. Is that a fair
statement? And if so, could you walk us through some of the differences in terms of acquisition price of
the vessels, and any different requirements the Coast Guard may have in terms of maintenance?
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| Joseph H. Pyne: |
Yeah, actually the plumbing is very similar, same engines, same electronics. It... There’s not that
different. The.. What is different is the structure and scantling sizes of the vessel itself. In an
offshore environment, obviously it has to be a sturdier vessel. In terms of the difference in costs, an
offshore vessel is going to be more expensive. Thirty thousand barrel inland barge is going to be 2.3/2.4
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million. An offshore barge is probably going to be, I would suggest,
probably 50% more than that. Offshore tugs are also going to be more
expensive, again, because they just have a stronger frame to support the
operating environment that they’re in.
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| John Larkin: |
So there wouldn’t be any flow of equipment between the two businesses? You really have to have sort of the
offshore fleet and then the inland fleet.
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| Joseph H. Pyne: |
No, that’s correct. Yeah, and that’s how we operate our offshore equipment today.
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| John Larkin: |
Yeah, I think some of the questions earlier about synergies and so forth may not have fully been
reflective of that fact.
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| Joseph H. Pyne: |
Yeah, you’re not going to take an offshore barge and work it on an inland waterway nor are you going to
take a tank barge, an inland tank barge and work it offshore.
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| John Larkin: |
Got it. So it’s really more marketing and overhead-related synergies that you are going to be evaluating
here over the next few months.
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| Joseph H. Pyne: |
That’s correct.
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| John Larkin: |
Okay. Now three acquisitions here in relatively short order, a lot of talk of the M&A market in general
heating up. Would you say that these three pretty much occupy your bandwidth for completing and
integrating acquisitions or is it possible that sometime this year there could be room for additional
acquisitions?
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| Joseph H. Pyne: |
Yeah, I wouldn’t discount that. The Enterprise acquisition, I would tell you is about fully integrated.
It... I don’t think there’s much more work to do there. Of course, we haven’t closed on either United or
K-Sea. United will close early April and the United... I think one of the things that may be missed here
is that United has operated successfully as an independent company since the 1930s, K-Sea separately as a
public company since 2004. I mean these companies aren’t broken. They’re... They’ve got strong experience,
tenured management teams. They’re perfectly capable of keeping the businesses going. What I found frankly
in integrating acquisitions, I don’t think that there are many companies that frankly have done as many
and have been as successful as Kirby doing it is if you rush into them with assumptions of kind of what
you’re going to do and what you’re not going to do, you’re going to make mistakes. When you have entities
that are operating successfully by themselves, I think that the better approach is to work with the
respective management teams and come up with the best way forward. Now if this was an inland tank barge
acquisition, it’d be a little different. But we’ve done both. We’ve done offshore acquisitions; we’ve
done diesel engine acquisitions; we’ve done inland acquisitions, and I think we have a formula that works,
that ultimately captures the cost synergies and opportunities that you get out of them and doesn’t make
everybody really nervous as you do that.
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| John Larkin: |
Are there any purchasing synergies aside from the insurance synergies that you mentioned earlier?
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| Joseph H. Pyne: |
Yeah, there should be.
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| John Larkin: |
I’m talking about maybe fuel, maybe actually the towboats themselves, you are going to become I guess a
very big customer to some of the suppliers in the industry.
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| Joseph H. Pyne: |
No, that’s right, and there should be. There should be all of that.
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| John Larkin: |
That’s great color. Thanks very much and congratulations again.
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| Joseph H. Pyne: |
Yeah, thank you.
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| David W. Grzebinski: |
Thanks, John.
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| Operator: |
Thank you. The next question is from Bill Kavaler from Oscar Gruss. Please go ahead.
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| Bill Kavaler: |
Hi. A couple of questions, just going back to the transaction for a moment. Is the cash portion of the
consideration limited in any way? If everybody... In other words, if everybody were to elect $8.15, would
everybody get that?
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| David W. Grzebinski: |
No, the preferred unitholders have to take 50% of their consideration in stock, the rest is in cash. The
common unitholders have the choice.
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| Bill Kavaler: |
Okay. But for the common unitholders, that choice is unlimited on the cash side?
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| David W. Grzebinski: |
Yes, they can take 100% cash.
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| Bill Kavaler: |
Okay. And the two choices are simply either cash or 50/50, is that correct? There’s no all-stock choice?
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| David W. Grzebinski: |
That’s correct.
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| Bill Kavaler: |
Okay. And one final
question. Is there any Jones Act issue that needs to — an approval or a filing that
needs to be made under the Jones Act?
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| Joseph H. Pyne: |
No, not under
the Jones Act. There of course (Inaudible)...
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| Bill Kavaler: |
Right, I
understand that but...
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| Joseph H. Pyne: |
Yeah, but no.
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| Bill Kavaler: |
Okay, thank you very much.
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| Joseph H. Pyne: |
You’re welcome.
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| Operator: |
Thank you. The next question is from Steve O’Hara from Sidoti & Company. Please go ahead.
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| Steve O’Hara: |
Hi. Good afternoon. I was just looking at the operating margins of the K-Sea business. I mean is this a
different business or is this a business where you think the operating margins can approach that of
Kirby’s transportation business?
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| Joseph H. Pyne: |
Well it’s certainly a different business. I don’t want to comment on operating margins. I did comment
earlier on EBITDA margins and said that at their peak, it was 27%, didn’t see why it couldn’t back there
or higher.
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| Steve O’Hara: |
Okay. And then finally, I mean based on your commentary, just seems like something that you’ll run
separately. I mean does that mean that you’ll be looking for acquisitions
in this — additional
acquisitions in this space?
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| Joseph H. Pyne: |
We’ll be looking for opportunities not only here but on the inland side also.
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| Steve O’Hara: |
Okay. And do you have a preference between the two?
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| Joseph H. Pyne: |
It depends on the opportunity.
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| Steve O’Hara: |
Right, assuming valuations are the same, of course.
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| Joseph H. Pyne: |
Yeah, I think
it depends — it just depends on the opportunity.
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| Steve O’Hara: |
All right, thank you.
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| Joseph H. Pyne: |
Welcome.
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| Operator: |
Thank you. The next question is from Dan McCarthy from Corner Stone Trading. Please go ahead.
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| Dan McCarthy: |
I apologize; I had a question that was already answered, so thank you very much.
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| Joseph H. Pyne: |
Okay, thank you.
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| Operator: |
Thank you. The next question is from Meelis Kosk from Mast Capital Management. Please go ahead.
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| Meelis Kosk: |
Hi, Joe, a quick question. It’s about the WTI and Brent spread that’s going on right now. Do you see Kirby
moving more product down the Mississippi? And could you maybe talk about the feasibility of moving crude
or products from the Gulf to the East Coast?
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| Joseph H. Pyne: |
Well it’s certainly feasible. If you can get it to water, you can move it. I think the challenge with
respect to the spread has been getting from Cushing to the water. There are folks that are trying to
figure that out, but at least to this point I don’t think that anything’s been moved. You are seeing some
Canadian crude oil move south on the river, and there’s also a lot of talk about moving some of the
liquids out of the Eagle Ford Shale play by water. Lots of potential opportunities, but the challenge is
to get them to the water efficiently.
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| Meelis Kosk: |
Okay. All right, well that was it. Thank you.
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| Joseph H. Pyne: |
Thanks.
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| Operator: |
Thank you. The next question is from Chaz Jones from Morgan Keegan. Please go ahead.
|
| Chaz Jones: |
Yeah hi, just one quick question; everything else has been asked. Joe, my memory is a little fuzzy. Didn’t
Kirby operate in the coastwise market on the refined product side in the past?
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|
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| Joseph H. Pyne: |
We did back in
the ‘90s, Chaz, but they were much larger units. They were ships that —
we at one point
owned 10 ships. That’s a much thinner market and we ended up exiting that market when it was apparent to
us that short-term/medium-term, the supply demand picture was going to deteriorate principally because of
some new construction that was occurring in that market. The problem with a larger market is that it’s so
thin that the ship long is going to make a difference in pricing.
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| Chaz Jones: |
Okay, that’s what I was looking for. Congratulations on the acquisition, Joe.
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| Joseph H. Pyne: |
Thank you.
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| Operator: |
Thank you. The next question is from Tony Reiner from Cantor Fitzgerald. Please go ahead.
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| Tony Reiner: |
All my questions have been answered. Thanks very much, and congratulations.
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| Joseph H. Pyne: |
Yeah, thank you.
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| Operator: |
Thank you. The next question is from Alex Brand from Sun Trust Robinson. Please go ahead.
|
| Sterling Adlakha: |
Hey, thanks for letting me back in the queue. Just had a couple of quick follow-ups. I was looking at
K-Sea’s 10-K and it looks like roughly 40% of the workforce is unionized. Is that the right number, and do
you see any potential pitfalls with regards to the merger from the union workforce?
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| Joseph H. Pyne: |
No, we don’t. The unions in the coastal trade are local for the most part and that’s their northeast
operation, but we don’t see an issue there.
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| Sterling Adlakha: |
Okay, all right, thanks. And also one more on just getting approval. Do you see any risk with HSR approval
for the deal?
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|
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| Joseph H. Pyne: |
Shouldn’t be, markets don’t really overlap. They’re complementary, but they don’t overlap.
|
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| Sterling Adlakha: |
Okay great. Thank you very much.
|
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|
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| Operator: |
Thank you. And the next question is from Sachin Shah from Capstone Global Markets. Please go ahead.
|
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|
||
| Sachin Shah: |
Hi. Good morning again. Just wanted to find out the termination fee for the deal.
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|
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| Joseph H. Pyne: |
I don’t know if we... Did we disclose it? I don’t think we disclosed it.
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| Sachin Shah: |
Okay. And you mentioned in the release that you’re expecting kind of a June or July timeframe. Any... If
you don’t have kind of significant comments from the SEC, is it possible you can close before June?
|
| Joseph H. Pyne: |
Possible. Possible.
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|
||
| Sachin Shah: |
Okay. But right now, you’re targeting a June timeframe, June/July timeframe?
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| Joseph H. Pyne: |
Yes, that’s correct. And I think the transaction fee will be disclosed later or excuse me, the termination
fee, but we haven’t disclosed it at this point.
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| Sachin Shah: |
Okay. Is there a go-shop period here?
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| Joseph H. Pyne: |
There’s no go-shop.
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| Sachin Shah: |
Okay, thank you very much.
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|
||
| Operator: |
Thank you. And at this time, there are no further questions.
|
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||
| G. Stephen Holcomb: |
Well thank you for participating in our call. If you have any other
questions, you can give me a call this. This is Steve Holcomb. My direct dial number is
713-435-1135, and we wish you a good day.
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| Operator: |
Thank you, ladies and gentleman. This concludes today’s conference. Thank you for
participating. You may now disconnect.
|
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