KEY POINTS:
Cashed-up freight giant Mainfreight has paid top dollar for its largest overseas acquisition to date, securing listed US company Target Logistics for US$53.7 million ($77.2 million).
Managing director Don Braid said Mainfreight had signed an agreement that would see it acquire the listed international freight forwarder and logistics provider for the equivalent of US$2.50 a share, which is a 36.6 per cent premium to Target's closing price on Monday.
The purchase price is equivalent to 10 per cent of Mainfreight's market cap. Its purchase of a majority stake in rival Owens Group in 2003 represented about 50 per cent of market cap at the time.
"But in terms of acquisition price this certainly is the biggest one we've done so far," said Braid.
The purchase would be funded through bank debt, but Mainfreight's balance sheet is strong because of the sale of its LEP and Pan Orient assets this year for close to $100 million.
Target's board has backed the deal and with Mainfreight having already secured 66.5 per cent of its shares, under listing rules in Delaware, the state in which Target is incorporated, Mainfreight can compulsorily acquire the balance. Minorities have an opportunity to object, "but from our point of view, we think we've offered a very good price and we would be very surprised if any of those remaining shareholders were to do so".
The acquisition is one of the three Mainfreight said last month that it was considering in the US and it would likely bed its purchase in before looking around again.
"This is a pretty big bite and we need to take stock until we get it settled," said Braid.
The acquisition will be earnings positive from year one but Braid refused to indicate by how much.
Last month he said that the company was looking for double-digit profit growth in the coming year through an expansion in local markets and overseas acquisitions.
In May, Mainfreight reported a record full year net profit of $55.6 million, up from $29 million the previous year. Revenue was $968.2 million, up from $886.5 million. Braid said Target would complement Mainfreight's existing US asset, CaroTrans. "CaroTrans is in the wholesale business of freight forwarding and will be able to assist Target as Target will be able to assist Carotrans with their domestic freight requirements, so there are some synergies that will be available to us."
Target's international operations are primarily in China and southeast Asia, where Mainfreight has also been expanding recently.
Goldman Sachs JBWere analyst Marcus Curley said it looked as though Mainfreight had paid "a fairly full price" for Target. "So the real upside from the acquisition depends on synergies that exist between Mainfreight's existing operations and the business that they have purchased coupled with its future growth prospects."
It was difficult to judge how that might pan out, given the limited amount of information available at present about Target.
Warren Couillault, chief investment officer at 11.7 per cent shareholder Fisher Funds, welcomed the acquisition. "It's a good a strategic move for them. We've had a lot of store in the company and have backed and endorsed their international expansions strategy," he said. Meanwhile, Braid was upbeat about Mainfreight's prospects in the US.
"It's a very competitive market but it's certainly not as scary as perhaps some people would think," he said. "This is a big tick for a New Zealand company trying expand offshore."
Mainfreight shares closed 5c higher (check) at $7.10 yesterday.
$180M in sales
* Target Logistics provides freight forwarding and logistics services across US and international supply chains.
* It has more than 3000 customers and a network of 34 offices across the US.
* Target Logistics' sales revenues in the financial year to June 2008 are expected to exceed US$180 million.
