Kintetsu World Express Inc., making an ambitious leap into the Americas contract logistics market, said today it will buy third-party logistics provider APL Logistics from parent Neptune Orient Lines Ltd. (NOL) for $1.2 billion.
The deal, expected to close in June, will give Tokyo-based Kintetsu a sizable foothold in the U.S. and into the Americas. Its U.S. division generated $305 million in revenue in the 2013 calendar year, according to data on Kintetsu's web site. Airfreight forwarding represents a large portion of the U.S. unit's revenue.
APL Logistics, headquartered in Singapore and with U.S. headquarters in Scottsdale, Ariz., had 2014 revenue of $1.65 billion. About two-thirds of its revenue is generated from operations serving the U.S. and points south, according to Transport Intelligence, a U.K. consultancy.
APL Logistics has an especially strong operation in automotive logistics between the U.S. and Mexico, and a solid domestic land transport business that includes its intermodal operations. Its annualized revenue has increased fivefold since it was formed in 2000. NOL's business has been comprised of APL Logistics and ship line APL, which NOL acquired in 1997 for $285 million.
Ng Yat Chung, NOL's group president and CEO, said the proceeds from the APL Logistics sale would be used in part to pay down debt. Divesting APL Logistics will allow NOL to focus on its liner business, Ng said, without going into detail. He added that the deal would allow APL Logistics to "realize its full potential."
NOL last week reported a US$260 million net loss for its 2014 fiscal year, compared to a US$76 million net loss in the prior fiscal year. The 2013 fiscal year results included a one-time $200 million gain from the sale of its headquarters building.
Like other liner firms with sizable U.S. exposure, NOL's cost and service levels were negatively impacted starting around mid-year by mounting congestion problems at West Coast ports. Yet the liner operation may have more secular problems, namely its perceived status as a mid-size player caught in a tough and volatile market with little opportunity to achieve the economies of scale of big liner companies like Danish company Maersk Line and German firm Hapag-Lloyd AG. Thomas Cullen, an analyst for Transport Intelligence, said in a report today that the APL Logistics divestiture may clear the way for NOL to be acquired by a larger ship line.
NOL had been shopping APL Logistics for several months with the hopes of fetching as much as $750 million for the unit. Cullen called the Kintetsu offer "generous" since it represents more than a third of the Japanese company's most recent reported annual revenue of $2.8 billion.
The price tag suggests Kintetsu is about to embark on a "very ambitious strategy" for global growth," Cullen wrote on Transport Intelligence's web site. Cullen said the acquisition has the potential to radically transform Kintetsu's contract logistics business in terms of size, scope and customer profile.
In a statement, Satoshi Ishizaki, Kintetsu's group president and CEO, said the acquisition continues a "strategy to strengthen our international presence, especially in the US and Asia." Kintetsu will run APL Logistics as a stand-alone unit and will keep its Singapore headquarters, Ishizaki said.