Ford Helps Take Carey Private
<B>Ford Helps Take Carey Private</B>
By Lynn Woods
Publicly held Carey International, the Washington, D.C.-based chauffeured transportation company, now is going private. The company in late July announced it was being acquired by Chartwell Investments II, LLC, a New York venture capital firm, and Ford Motor Co. The $300 million transaction, $100 million of it in equity, is due to be completed by the end of August. Shares of Carey International stock are being purchased by the new owners at $18.25 per share--compared with the $11 to $13 valuation of the stock when Carey went public in 1997.
Neither Carey, Chartwell nor Ford would comment on the sale, although Vincent A. Wolfington, chairman and CEO of Carey, in a press release noted that Carey welcomed "the opportunity to solidify our longstanding strategic relationship with Ford Motor Co." Chartwell president Todd Berman was quoted in the same release as saying he was confident "the growth of the travel industry, coupled with the company's outstanding reputation for service and its premier reservation system" would sustain Carey's "record of double-digit earnings growth."
While one observer questioned Berman's reference to Carey's reservation system--perceived as a company weak point--he noted the acquisition overall could well be a vote of confidence by the financial sector in the car services industry, which previously had no track record with Wall Street. "Carey was the first company in the chauffeured transportation industry to go public," said Tom Mazza, editor of LLCT Limousine & Chauffeured Transportation magazine. "After three years of ups and downs, Carey has proved to be pretty solid, and this should help attract venture capital to the industry."
But Scott Solombrino, president of Chelsea, Mass.-based Dav El Chauffeured Transportation Network, a leading Carey competitor, said the acquisition sent a different message. "If Carey was performing well as a public stand-alone company, they'd still be a public company," he said. "Obviously they were bailed out by Ford Motor Co., which paid exactly what it takes to buy out the shareholders and debt."
The only other limousine and sedan company that is publicly held, Dallas-based Precept Transportation Services, has been put on the block by parent company Precept Business Services, following a dismal stock performance.
The Precept performance and the Carey acquisition raise questions about the viability of the chauffeured car services industry in the public market, Solombrino said. "Can chauffeured transportation service companies like ours and Carey perform well enough in the new economy, where there's tremendous pressure to grow at tremendous rates?" The answer may well be no, he concluded. "We're not a fast-growing industry like a computer software company, which is what Wall Street is accustomed to."
No one disputes that Carey had a lackluster financial performance in the past year. In April, Carey's stock plummeted to seven and a half after it missed its first quarter earnings goal, although it since has recovered with favorable earnings for the second quarter, in which it had net income of $3.8 million and total revenues of $67 million.
Ford, which is a minority shareholder in the new deal, may be on a rescue mission because it has a sizable stake in Carey's future, said Solombrino and other observers. The company has invested substantially in developing a slightly larger stretch version of its newest model of the Lincoln Town Car, primarily at the instigation of Carey, a major customer. Dissatisfaction with the smaller trunk and reduced head room in the back seat of the 1998 redesign of the Lincoln Town Car had prompted Ford to build a modified, six-inch stretch version for Carey and other customers.
Furthermore, Ford's minority status suggested that the automobile manufacturer was merely giving its seal of approval to the deal rather than wholeheartedly committing to the limousine and sedan business, Solombrino added.
Other observers said the arrangement potentially could cause a conflict of interest between Ford and the thousands of Carey competitors that depend on the manufacturer for both their fleets and the financial underwriting of those vehicles. "Some people might feel if the manufacturer buys into a limo company it gives that group an advantage," said David Ransom, manager of preferred vehicle group at General Motors.
However, one limo company executive said such concerns were premature. "Provided the same fleet programs are made available to the limo industry as to Carey, on the surface this doesn't change anything," noted Joseph Valenza, vice president of sales and marketing at Air Brook Limousine, based in Rochelle Park, N.J. However, he added, it was "too soon to tell" if this would be the case since the details of the relationship have not yet been fully disclosed.
The move could create an opportunity for GM. After many years spent on the fringes of the chauffeured car services market, GM regained a foothold last year by forming a partnership with Dav El, which is replacing its Lincoln Town Cars with Cadillac Sedan de Villes.
Unhappy with the smaller, redesigned 1998 Lincoln Town Car model, Solumbrino made the switch not only because of the larger size of the Cadillac, but also because the car is supplied with OnStar, GM's emergency road and concierge service. In addition, some of the 2001 models will be equipped with special night-vision windshields.
However, GM has had problems of its own. Delivery of the new Cadillacs has been plagued by delays. Solombrino said he didn't begin phasing cars into his fleet until last December, months after the initial schedule of delivery. Empire International, based in Norwood, N.J., canceled its order for 20 Cadillacs because of continual stalls in their delivery, according to Empire director of sales Bob Van Ess.
"We had some delays in startups," conceded Ransom, who said delivery of the 2001 models is on schedule and that the company has received "quite a few orders from limo companies.