Leading third party logistic company CH Robinson Worldwide Inc. (CHRW - Analyst Report) 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 - Analyst Report). 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.