Genesee & Wyoming Inc set to acquire RailAmerica

The acquisition will combine the two largest short line and regional rail operators in North America, with GWI saying that the move will strengthen its ability to better serve its industrial customers and Class I railroad partners.
In addition, GWI says the combination should yield significant synergies and provide strong leverage to the eventual recovery of the U.S. economy, while creating a powerful platform for future industrial development along railroads in the 37 U.S. states in which GWI will now do business.

GWI expects to fund the transaction and the simultaneous refinancing of its existing debt with approximately US$2.0 billion of new debt and approximately $800 million of equity or equity-linked securities. GWI has received US$2.3 billion of committed debt financing from Bank of America Merrill Lynch and $800 million of committed equity financing from The Carlyle Group.

The acquisition is subject to United States Surface Transportation Board (STB) formal approval of GWI’s control of the RailAmerica railroads. GWI expects to close the transaction into a voting trust as early as the third quarter of 2012 while it awaits formal STB approval. Once the transaction is approved GWI would be able to fully integrate RailAmerica, which may be as early as Q4 2012, but could be delayed until Q3 2013.

Upon integration, eventual cost savings are expected to yield at least US$36 million per annum, mainly though corporate rather than operational efficiencies.

Using the previously reported results of GWI and RailAmerica, the transaction increases GWI’s total revenues by nearly two-thirds to approximately US$1.4 billion. Following the transaction, GWI will have 111 railroads (108 in North America), 15,100 miles of track (12,900 in North America), 1.8 million carloads (1.6 million in North America), 1,000 locomotives (900 in North America) and 4,300 employees (3,900 in North America).

The acquisition is unlikely to have any major impact on GWI’s Australian operations which despite some dilution of their overall contribution, will still represent approximately 20% of GWI’s total incomes.

Jack Hellmann, President and CEO of GWI commented, “The acquisition of RailAmerica by GWI is a straightforward combination of two organizations with overlapping holding company structures and complementary railroad geographies. As a result, the synergies between the companies are expected to be significant, and we anticipate unlocking significant shareholder value.

“For our current customers, the combination will only strengthen our ability to offer what has long been the lifeblood of the short line industry: local, flexible, responsive operations with outstanding customer service. For our Class I partners, our commitment to service excellence, the intensity of our local marketing and commercial development, as well as our industry-leading safety record should be powerful long-term drivers of future rail traffic across all of our Class I connections.”