Leading third party logistic company CH Robinson Worldwide Inc. (CHRW) has reached a definitive agreement to sell its payment service business, T-Check Systems Inc., to Electronic Fund Source LLC (:EFS) for a cash consideration of $302.5 million. It is expected that the CHRW will utilize the net proceeds to fund its planned acquisition of Phoenix international.
T-Check, which has been a subsidiary of CHRW since 1984, is a business-to-business provider of payment processing services and supports fund transfer, vendor payment, fuel purchasing and online expense management among others.
T-Check primarily caters to transportation industry. However, because of a change in industry dynamics, the Minnesota-based company has expanded into the financial service sector, thereby handling fund transfer and expense management for other industries. After the deal, EFS expects to retain most of T-Checks Minnesota employees but hasn’t declared any specific number.
Management of CHRW has argued that the strategic rationale for selling the unit is to bring long term success for T-Check. They believe that as the financial service sector continues to consolidate, the integration with EFS will provide T-Check with the scale and size it requires. On a different note the company hasn’t performed very well in the preceding three quarters registering a topline growth of only 3.125% which could be one of the key factors responsible for the sell.
Recently, CHRW announced that it plans to buy privately-held global freight forwarding company Phoenix International Inc. in a cash and equities deal worth $635 million. This was required to thwart stiff competition from a large number of entities competing in the international logistics industry like Expeditors International of Washington Inc. (EXPD). We believe, CHRW will use the fund to buyout Phoenix International Inc, which will give it a strong foothold in the freight forwarding industry.
We maintain our long-term Neutral recommendation on C.H. Robinson Worldwide Inc. The company also retains a Zacks #3 Rank, implying a short-term Hold rating.
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