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Freightways spends $12.7 mln on unprofitable Iron Mountain info management unit

Monday 3rd October 2011

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Freightways, the courier and data management company, spent $12.7 million to acquire the subsidiary of an American information management company that has yet to turn a profit.

The Auckland-based company agreed to buy Iron Mountain New Zealand, a subsidiary of NYSE-listed Iron Mountain Inc., and will merge the new unit into its own Online Security Services unit, it said in a statement.

Freightways will pay for the merger from existing debt facilities, and expects its debt-to-debt-plus-equity ratio will be about 48.5%.

“This acquisition is consistent with Freightway’s growth strategy to acquire complementary businesses and to increase its penetration in the information management sector,” the company said in a statement.

“Freightway’s information management division has proven to be resilient during recent economic cycles and has continued to deliver strong organic growth in both New Zealand and Australia.”

Freightways increased its underlying profit 7% in the 12 months ended June, and net profit climbed by almost a third to $29.9 million, though that was distorted by lower tax charges and one-off charges from the Christchurch earthquake.

The shares fell 1.6% to $3.15 in trading today, and have gained 1% this year. The stock is rated ‘outperform’ according to an average recommendation of seven analysts compiled by Reuters.

The former Iron Mountain unit has forecast revenue of $12 million and earnings before interest, tax, depreciation and amortisation of $1.5 million.

It posted a loss of $3.2 million in the year ended Dec. 31, according to financial statements lodged with the Companies Office, and hasn’t been in the black since Iron Mountain bought it in 2005 due to related party finance costs.

In July, U.S. parent Iron Mountain said it wanted to sell its New Zealand unit as it reviewed its international businesses, having already sold its online back-up and digital archiving unit to British software company Autonomy Corp. for US$380 million.

Earlier this year, Iron Mountain was pressured by investors to make strategic changes after its global expansion plans failed to offer big enough returns. That resulted in the resignation of former CEO and President Bob Brennan.

Iron Mountain’s shares fell 2.1% to US$31.62 on the New York Stock Exchange, and have climbed 29% this year.

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