Genesee & Wyoming set to buy RailAmerica

The two largest short line and regionalrailoperators in North America will become one, with this week’s announcement that Genesee & Wyoming (G&W) will acquire RailAmerica for an all-cash purpose price of $27.50 per share—or roughly $1.39 billion.

G&W officials said that this acquisition will boost its ability to serve its industrial partners and Class I railroad partners, as well as yield significant synergies and provide strong leverage to the eventual economic recovery of the U.S. economy and create a powerful platform for future industrial developments along the railroads in the 37 states where GWI operates and conducts business. The two companies cumulatively account for 108 railroads.

This acquisition, said G&W, is subject to approval by the U.S. Surface Transportation Board’s (STB) formal approval of G&W’S control of the RailAmerica railroads and is expected to close as early as the third quarter. G&W said it expects to fund the transaction and simultaneous refinancing of its existing debt with about $2.0 billion of new debt and about $800 million of equity or equity-linked securities.

“Today is a very shining day for G&W as we are announcing our largest acquisition in our history,” said G&W President and CEO Jack Hellman on a conference call. “The combination of G&W and RailAmerica is an inherently logical one as the overlapping holding company structure of our two organizations has the capacity to significantly unlock shareholder value.”

Hellman also explained that the transaction is strategically transformational in terms of North American operations as it will operate 108 railroads over more than 12,000 track miles in North America.

This footprint he said is viewed as a wide footprint for a major long-term opportunity for commercial and industrial development and to eventually significantly drive new traffic across the U.S. rail system and for all of its Class I partners.

Growing by acquisition is nothing new for G&W. The company has integrated 65 railroads through 36 acquisitions since 1985. And the operational integration of RailAmerica will be overseen by a joint integration team from both companies, according to company officials.

“This is an exciting day for both RailAmerica and Genesee & Wyoming,” said John Giles, President and CEO of RailAmerica, in a statement. “For RailAmerica, the sale represents validation of the transformational improvements that our management team and employees have made since the acquisition of the business in 2007 by investment funds managed by affiliates of Fortress Investment Group LLC. From this strong base of operations and having unlocked significant shareholder value, a combination with Genesee & Wyoming is the logical next step in creating a combined organization that will be a powerful driver of North American rail traffic for decades to come.”

Along with the planned acquisition of RailAmerica, G&W also announced a major equity investment—of $800 million—into its company by the Carlyle Group, which Hellman said will unlock significant rail investment opportunities for G&W on a global basis.

“Genesee & Wyoming’s management expects cost savings synergies related to overhead consolidation to be at least $36 million, about three-quarters of which should be realized within one year after the full integration,” wrote Stifel Nicolaus analyst John Larkin in a research note. “We expect additional synergies to come from improved asset utilization, better purchasing, strengthened relationships with Class I rail partners, some consolidation of regional management, and modest revenue enhancement opportunities.”