Sea Containers Ltd (fka SCRA)

[greggor62]

heres a great article.

http://investorshub.advfn.com/boards/board.asp?board_id=10118

The 'ferries to berries' conglomerate is hoping to ride out a rocky patch by focusing on core businesses, writes Oliver Morgan

Sunday May 7, 2006
The Observer


So many bits are falling off Sea Containers so fast that it seems only a matter of time before the old-fashioned ferries-to-berries conglomerate falls to bits itself. Last Monday the Bermuda-registered, New York-quoted, London-based group founded in 1965 as a container leasing business by the buccaneering ex-US Navy officer James Sherwood announced that doubts over its status as a going concern may have to be raised in its forthcoming 2005 accounts.

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Two days later there was more bad news when the group lost a valuable contract to provide back-up services to the backbone of the group - its container leasing operations - run as a joint venture with GE Capital. The problems did not, however, come as a bolt from the blue. In March, Sea Containers announced it was exiting its other main area of business: operating ferries. Its Baltic operator Silja is on the block, with Société Générale running the sale.
Bids said to be in the region of ?500m (£343m) have been received from, among others, Viking Line of Sweden and Tallink of Estonia. Its other operations in the Mediterranean, along with single vessels, have for sale signs up, too. In fact, Sea Containers has been selling assets hand over fist. Last year it sold its 25 per cent stake in Orient-Express Hotels and closed its Hoverspeed Cross Channel operations. The reason was its ferries were bleeding money, so much so that last November Sea Containers let it be known it would 'entertain offers' for these businesses.

When those offers came in, it was obliged to write down the value of the ferries business by $415m which, added to a similar $85m charge on its container assets, lopped $500m off the value of the company, breaching banking covenants. In March Sherwood stepped down. He now chairs New York-listed Orient- Express Hotels. New chief executive Bob MacKenzie is now talking about focusing on core areas. Core is understood to include container leasing and the Great North Eastern UK rail franchise.

It is not thought to stretch to its other concerns, such as ferries, Brazilian grape farms, magazine publishing, the London Illustrated News and property management. Sea Containers' demise has not seen the sort of fireworks that surrounded the disembowelling of James Hanson's eponymous tobacco-to-engineering group, or the break up of Trafalgar House, the construction-hotels-cruise line bolted together by Nigel Broackes. In fact, apart from the gruff Sherwood himself and the spectacular two-way takeover defence he pulled off at the beginning of the 1990s, the company's profile has been considerably lower than the brash brass'n'glass headquarters it leases on the Thames's south bank at Blackfriars.

Part of the reason for this, and the main reason it survived for longer than its one-time peers, is that although it has been run from the City by a financier, Sea Containers is quoted in New York. Its market capitalisation - last week it stood at just under $130m - has been only a fraction of its overall value because Sherwood has financed it through debt, currently $1.3bn. And, since the late 1980s early 1990s takeover battle with Tiphook - run by another flamboyant money man, Robert Montague, and the privately owned Stena Line of Sweden - Sherwood has sought to control the business tightly himself.

The battle for Sea Containers was bitterly fought. In May 1989 Tiphook, run by Montague and Stena, launched an $824m joint bid for Sea Containers. The plan was for Stena to pay $398m for Sealink, the cross-channel ferry operation that was competing with P&O (in the days before the tunnel) with Tiphook paying $426m for the containers business. Montague attacked Sherwood for his authoritarian management style and for thwarting initiative. Sherwood fought back, dismissing the approach, and attacking Stena over alleged irregularities with SEC document filings. He quickly proposed asset sales and a restructuring to win his own shareholders over.

'After Jim blocked the approach, the company became very hard to take over because the shares that are listed have limited voting power,' says one industry expert. 'That resided with the board.' The bitter battle for Sea Containers indicated how determined Sherwood was to protect the business he had built. He was forced to sacrifice the Sealink channel ferry operations to Stena and sell some 200,000 containers to Montague. But he raised more than $1bn and reinvested it in the new business, building up GE Seaco to be one of the world's biggest container leasing groups, with 1.2 million 'boxes', and bought up other ferry operations - which are now being sold. While Sherwood rebuilt the company he watched Tiphook collapse, Montague go bankrupt and Sealink close.

One person close to him says: 'This is very much a business built on the vision of Jim Sherwood. He came out of the US Navy and he was full of big ideas. He was one of the first to spot the potential in container leasing, and from there he got into businesses that he understood and found interesting.' He took Sea Containers public in 1968, floating it six years later on the New York stock exchange. As befits the late-twentieth-century conglomerate builder, Sherwood has been nothing if not idiosyncratic. He liked Venice's Hotel Cipriani so much he bought it in 1976, and from there built up the Orient-Express Hotels chain. Six years later he restarted the Orient Express train service.

In 2001 he won a 40-year contract to operate the Corinth Canal, which links the Aegean and Adriatic seas, where he also had ferry operations. As a colleague remembers, 'If he comes across something and he likes it, he might well end up buying it. For example, he tried to buy the Times with Harry Evans, but Murdoch paid more, so the "crumb on the table" as he called it, was the Illustrated London News.' Sea Containers still owns the ILN, founded in 1842, and has built a contract publishing business alongside it. Now, however, the pieces are coming apart.

One analyst said: 'They brought in Bob MacKenzie, who used to run NCP, and he's a very straightforward manager. He has seen what the problem was and seems to have worked out that to fix it you need to get back to the core operations. That means containers and probably the railway. MacKenzie is currently drafting a plan that will seek to rebuild the business once it has shed the mountain of debt under which it has been struggling. MacKenzie says: 'SCL has a complex business structure and its high central cost base and high leverage are causes of many of the present problems.

He was optimistic of a sale and for the prospects for GE SeaCo. But when he is finished, Sea Containers may, like Hanson, be a shadow of its transatlantic progenitor. Sherwood, however, can smile: he outlasted some of the biggest names in British business and still chairs one with 50 very nice places to sleep in, in very nice parts of the world.