IPO Preview: LINC Logistics

| About: LINC Logistics (LLGX)

Based in Warren, Michigan, LINC Logistics (LLGX) scheduled a $170 million IPO with a market capitalization of $460 million at a price range mid-point of $13, for Thursday, May 10, 2012. [S-1]

LLGX is one of 12 IPOs scheduled for the week of May 7 (Full IPO calendar here).

Manager, Joint Managers: Citigroup; Stifel Nicolaus Weisel.

LINC provides custom-developed third-party logistics solutions to help customers and clients to reduce costs and manage their global supply chains more efficiently.

2012 March quarter income was flat relative to the 2011 March quarter.

LLGX ranked number 38 on the Transport Topics 2011 list of the top 50 logistics companies in the United States - a relatively low ranking which probably translates into a lower P/E multiple.

LLGX expects to IPO at a P/E discount to Echo Global Logistics (NASDAQ:ECHO) & Expeditors International of Washington (NASDAQ:EXPD) and at a book value premium to both of them.

LLGX expects to pay a fourth quarter dividend in 2012 of $0.038, a 1.1% annual return at the price range mid-point of $13.

LLGX appears to not be worth the business risk because March quarter earnings were flat 2012 vs 2011 and LLGX is ranked only 38 out of 50 logistics companies in the US.

LLGX expects to be offered at a P/E discount relative to ECHO and EXPD. LLGX is owned and run by the family of the 'slum lord billionaire' Manuel Moroun.

LLGX operates, manages or provides transportation services at 43 logistics locations in the United States, Canada and Mexico.

Thirteen facilities are located inside customer plants; the other facilities are generally located close to LLGX's customers' plants to optimize the efficiency of their component supply chains and production processes.

LLGX's facilities and services are often directly integrated into and located near the production processes of our customers and represent a critical piece of their supply chains.

Historically, the largest end-market has been the automotive segment. Revenues in sectors outside of automotive grew at a compound annual rate of 28% to $60.4 million, or 21% of revenues, for the year ended December 31, 2011, from $22.4 million, or 7.5% of revenues, for the year ended December 31, 2007.

As of December 31, 2011, 48% of LLGX's employees were subject to collective bargaining agreements of which 91% are subject to contracts that expire in 2012.

In December 2011, seven months after launching five new freight consolidation centers in Europe for the European subsidiary of a Tier I automotive supplier, LLGX discontinued and closed the centers.

LLGX's action was the result of lower-than-anticipated volumes through a customer's European supply chain and the subsequent decision by LLGX's customer's European subsidiary to substantially alter their overall approach to freight transportation.

On April 20, 2012, employees located at LLGX's new General Motors (NYSE:GM) operation, representing 4% of total employees at December 31, 2011, voted to accept an offer from GM to join a collective bargaining unit contracted directly with GM.

Although LLGX's contract for this operation has not been modified yet, it may result in lower revenues from this General Motors operation.

LLGX ranked number 38 on the Transport Topics 2011 list of the top 50 logistics companies in the United States. That's a relatively low ranking and may translate into a lower price-to-earnings ratio than publicly held competitors.

LLGX historically has competed for new business awards with Android, CEVA, Comprehensive Logistics, DHL Exel, Innovative Logistics, New Breed, Ryder Logistics (NYSE:R) and syncreon.

For transportation services, automotive customers also will consider Averitt and Penske.

LLGX's niche specialized services business, which is positioned more as a transactional business, competes with a broader range of companies like Estes Worldwide Forwarding, Expeditors International , Forward Air (NASDAQ:FWRD), Panther Expedited and UTi Worldwide (NASDAQ:UTIW).

Shareholders: Moroun family including the CEO Matthew Moroun son of Manuel Moroun, also known as the 'Slumlord Billionaire'

Following this offering, LLGX intends to pay quarterly cash dividends. LLGX expects that its first dividend will be paid in the fourth quarter of 2012 and will be $0.038 per share of the common stock.

On December 29, 2006, LLGX's board of directors declared a $93.0 million special cash dividend payable to CenTra, Inc., the sole shareholder at the time, which is owned by the Moroun family. The special dividend was approved in anticipation of the spin-off of LINC that was completed on December 31, 2006. Subsequently, on December 31, 2008, LLGX reduced the dividend payable to $68.0 million by issuing a $25.0 million dividend distribution promissory note initially issued to CenTra. The $68.0 million dividend payable was further reduced by $10.0 million on December 22, 2010 after a payment made to CenTra, resulting in a balance of $58.0 million as of December 31, 2010.

In connection with the April 21, 2011 refinancing, the dividend payable was further reduced by $31.0 million. The note currently bears interest at a fixed rate of 1.64% per annum and is due on December 31, 2013. Payment of the $27.0 million dividend payable is also due on or before December 31, 2013.

LLGX intends to pay both the $27.0 million dividend payable and the $25.0 million dividend distribution promissory note immediately following this offering with a portion of our net proceeds.

During 2010, LLGX paid six cash dividends aggregating $21.2 million to Matthew T. Moroun and a trust controlled by Manuel J. Moroun, the shareholders on the record dates for those dividends.

During 2011 LLGX paid six cash dividends aggregating $22.5 million to its owners. In addition to these dividend payments, LLGX directly paid state withholding taxes of approximately $71,000; $116,000 and $290,000 in 2009, 2010 and 2011 respectively, on behalf of shareholders. On January 4, 2012, January 30, 2012 and February 8, 2012, we declared and paid additional dividends totaling $6.0 million.

On April 23, 2012 LLGX distributed an additional $28.0 million to shareholders resulting from termination of the S-corporation status. This final distribution was in the form of a promissory note to each of our current shareholders and was equal to our estimated taxable income for periods prior to the termination date of our S-corporation status, less any dividends previously distributed. The promissory notes will be satisfied by payment of the lesser of its principal amount or the final determination of the applicable taxable income within 90 days after completion of this offering.

As of December 31, 2011, LLGX employed 1,721 people in the United States, Canada and Mexico.

LLGX expects to net $138 million from its IPO. The proceeds are allocated to pay dividends to the Moroun family and to repay debt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This LLGX IPO report is based on a reading and analysis of LLGX's S-1 filing which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

About this article:

Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here