Genesee & Wyoming Inc. (G&W) (NYSE:GWR) announced today
that its subsidiary Genesee & Wyoming Australia (GWA) has
entered into agreements to acquire Glencore Rail (GRail) for A$1.14
billion and concurrently issue a 49% equity stake in GWA to funds
managed by Macquarie Infrastructure and Real Assets (MIRA).
Transaction Highlights
- Strengthens GWA’s nationwide footprint
in Australia by adding a significant presence in the Hunter Valley
coal supply chain in New South Wales complementing GWA’s existing
intermodal, agricultural and mining business in South Australia and
the Northern Territory
- Initial financial impact to G&W is
expected to be neutral to G&W’s Net Income and EPS, and
modestly free cash flow accretive. In the medium term, G&W
expects significant Net Income, EPS and free cash flow accretion
from anticipated growth under the rail haulage contract
- Acquisition of GRail for A$1.14 billion
(US$866 million at current exchange rates) adds A$100 million of
2017E EBITDA (US$76 million), which is expected to grow to A$150
million (US$114 million) in the medium term supported by a
long-term take-or-pay and exclusivity contract with Glencore Coal
Pty Limited (GC)(1)
- Creation of GWA partnership (51%
G&W and 49% MIRA) with an enterprise value of A$2 billion
(Adjusted EBITDA of A$180 million from combined GRail and existing
GWA run-rate) joins operating expertise of GWA with financial
resources of MIRA, the largest manager of infrastructure assets
globally(1)
- Transaction expected to close on
December 1, 2016, subject to Australian Foreign Investment Review
Board approval
G&W and MIRA Comments
Jack Hellmann, President and CEO of G&W, commented, “The
acquisition of Glencore Rail solidifies GWA’s position as the most
efficient rail operator with the highest service quality in the
Australian rail market. Through the acquisition and 49% new equity
issued to MIRA, we are effectively doubling the size of GWA and
retaining 51% of a business with stronger long-term free cash flow
and a significant portion of GWA’s rail shipments under long-term,
take-or-pay contracts.”
“We are pleased to be enhancing our existing relationship with
Glencore through a two-decade rail haulage contract that provides
for exclusive rights to rail shipments from some of the premier
steam coal mines in the world, serving end users in Japan, South
Korea, Taiwan and Southeast Asia. Furthermore, we believe that our
partnership with a world class Australian infrastructure investor
in MIRA will enable us to leverage our rail platform for extensive
future growth within Australia.”
Frank Kwok, Asia-Pacific Co-Head of MIRA, said, “We are pleased
to be partnering with G&W, a leading global rail operator in
their Australian business. GWA is a strong business that owns and
operates essential rail infrastructure supporting industries
primarily operating in regional Australia. For MIRA, this agreement
expands our infrastructure footprint in Australia and allows us to
contribute our international experience investing and managing
transport and transport services assets.”
Description of Glencore Rail
(GRail)
GRail’s coal haulage business was established in 2010 as an
alternative rail service provider to the incumbent railroads in the
Hunter Valley and has grown to be the third largest coal haulage
business in Australia. G&W’s Freightliner Australia subsidiary
(acquired by G&W in March 2015) has been the rail operator of
GRail since inception and presently provides haulage and logistics
services for approximately 40 million tonnes per year of steam coal
that is among the lowest cost and highest quality coal in the
world. These services will continue following the GRail
transaction.
In conjunction with the acquisition of GRail, GWA will enter
into a 20-year rail haulage contract with GC. The rail haulage
contract will contain rights, subject to certain limitations, to
exclusively haul all coal produced at GC’s existing mines in the
Hunter Valley to the Port of Newcastle and will have minimum
guaranteed volumes over the first 18 years. Initial volumes under
the rail haulage contract are expected to be approximately 40
million tonnes per year. GC’s obligations under the contract will
be guaranteed by Glencore plc (LN: GLEN).
The GRail transaction includes the acquisition of nine train
sets (30 locomotives and 894 wagons). Rail haulage service is
operated on government-owned, open-access track that is coordinated
by a neutral third party. Track access fees will continue to be
paid directly by GC.
In addition to being the most efficient operator in the Hunter
Valley, GWA’s quarterly service performance under the existing
contract with GRail has consistently exceeded 99% of GC’s ordered
tonnes for export. Following the acquisition, GWA plans to deploy
surplus high-horsepower locomotives from South Australia to New
South Wales to pursue new business opportunities and provide
additional redundancy for the existing coal haulage operations. In
the medium term, GWA anticipates purchasing two additional train
sets (approximately A$50 million per train set) to handle
incremental tonnages that are expected to be available under the
rail haulage contract with GC.
GWA Financial Overview
Since GWA presently operates the GRail business (since the 2015
acquisition of Freightliner), the revenues and operating costs
associated with GRail have been included in GWA’s financial
results; therefore, the table below highlights the anticipated
incremental contribution from the GRail acquisition on G&W’s
Australian Operations (GWA Combined).
A$ in millions GWA(a)
Incremental GRail(b) GWA
Combined Revenue A$290 A$100 A$390 Net Income (4) NM ~(4)
Adjusted Net Income 22 NM ~22 Adjusted EBIT 42 58 100 D&A 38 42
80 Adjusted EBITDA 80 100 180 Average Sustaining Annual Capital
Expenditures 20 5 25
(a) Approximate run-rate of existing GWA operations, adjusted to
exclude the impairment and related costs recorded in the first
quarter of 2016 and costs incurred to the transactions described
herein(1)
(b) Year 1 expectations for GRail. Net Income for GRail includes
the consolidated impact of the capitalization of GWA following the
transaction and excludes MIRA’s 49% share of GWA’s Net Income
To create the A$2 billion enterprise value partnership, G&W
and MIRA are contributing a combined A$1.3 billion in the form of
cash, shareholder loans and contributed equity, and GWA is entering
into a five-year A$690 million senior secured term loan facility
that is non-recourse to G&W and MIRA. These proceeds will be
used to acquire GRail for A$1.14 billion, repay GWA’s existing
A$250 million term loan (under G&W’s credit facility) and pay
A$32 million of transaction costs.
Sources A$ in millions
Uses A$ in millions New AUD Bank Debt
A$690 Purchase GRail A$1,140 MIRA (equity & SH loan) 644 Repay
GWA Term Loan 250 GWA Equity (contributed) 597 GWA Equity
(contributed) 597 New Cash from G&W
88
Transaction Costs
32
Total Sources A$2,019 Total Uses
A$2,019
The new A$690 million senior secured term loan from the
Australian bank facility is initially priced at BBSY +290 bps (BBSY
is analogous to LIBOR). GWA anticipates it will enter into interest
rate hedging contracts to fix 75% of interest payments for the
first three years and 50% of interest payments over the remaining
two years. All-in interest cost for the A$690 million senior
secured term loan facility is approximately 5% per annum inclusive
of the amortization of upfront fees. The new A$690 million bank
facility is non-recourse to G&W.
In addition, GWA will incur approximately A$14 million of
interest expense associated with a A$240 million non-recourse
subordinated shareholder loan from MIRA used to fund a portion of
its equity contribution (note G&W has a matching shareholder
loan for a portion of its contributed equity that is eliminated in
consolidation).
G&W will also contribute A$88 million (US$67 million) in
cash that will be drawn under G&W’s revolving credit facility
at a current borrowing cost of 2.5%.
Financial Impact on G&W
G&W expects the transaction to be initially EPS neutral,
subject to finalization of acquisition accounting under U.S. GAAP,
and for the transaction to be modestly free cash flow accretive. In
the medium term, G&W expects significant EPS and free cash flow
accretion from anticipated growth under the terms of the rail
haulage contract.
Following the transaction, G&W will continue to consolidate
100% of GWA in its financial statements and will record a
noncontrolling interest for MIRA’s 49% equity ownership. The
incremental financial impact to G&W’s consolidated financial
results is expected to include US$76 million (A$100 million) of
revenue, US$44 million (A$58 million) of EBIT, US$32 million (A$42
million) of depreciation & amortization, US$30 million of
interest expense (A$40 million), US$9 to US$10 million of net
income attributable to noncontrolling interest for MIRA’s 49% stake
(A$12 to A$13 million) and US$3.8 million (A$5 million) of capital
expenditures.
The expected US$30 million (A$40 million) incremental interest
expense includes the net impact of the new A$690 million term loan
facility (~5% interest rate) compared to GWA’s existing interest
expense (A$250 million at a ~4% interest rate), as well as the
interest expense from the A$88 million (~2.5% interest rate) that
G&W is contributing to the partnership and interest expense
from the A$240 million shareholder loan (~6% interest rate) used to
fund a portion of MIRA’s investment.
G&W has concurrently entered into an amendment to its Senior
Secured Syndicated Facility Agreement (the “credit facility”)
to, among other things, remove GWA as a borrower and guarantor
under the credit facility upon the consummation of the GRail
transaction. As a result of removing GWA from the credit facility,
G&W will not include GWA’s debt, interest cost or EBITDA in
determining compliance with the financial covenants under G&W’s
credit facility but will include cash distributions received from
GWA; G&W expects these changes and this transaction will not
have a material effect on G&W’s leverage.
G&W Advisors
Bank of America Merrill Lynch served as financial advisor.
Allens served as legal advisor on the GRail acquisition and
formation of the GWA partnership, and King & Wood Mallesons
served as legal advisor on the Australian debt financing.
MIRA Advisors
Macquarie Capital served as financial advisor. Norton Rose
Fulbright served as legal advisor.
About G&W
Genesee & Wyoming owns or leases 121 freight railroads
worldwide that are organized in 10 operating regions with
approximately 7,200 employees and more than 2,800 customers.
- G&W’s eight North American regions
serve 41 U.S. states and four Canadian provinces and include 114
short line and regional freight railroads with more than 13,000
track-miles.
- G&W’s Australia Region provides
rail freight services in New South Wales, the Northern Territory
and South Australia and operates the 1,400-mile Tarcoola-to-Darwin
rail line.
- G&W’s U.K./Europe Region is led by
Freightliner, the U.K.’s largest rail maritime intermodal operator
and second-largest rail freight company. Operations also include
heavy-haul in Poland and Germany and cross-border intermodal
services connecting Northern European seaports with key industrial
regions throughout the continent.
G&W subsidiaries provide rail service at more than 40 major
ports in North America, Australia and Europe and perform contract
coal loading and railcar switching for industrial customers.
For more information, visit gwrr.com.
About GWA
Genesee & Wyoming Australia (GWA) operates nearly 5,000 km
of track in South Australia and the Northern Territory, including
the 2,200-km Tarcoola-to-Darwin railway, and has approximately 600
employees, 90 locomotives and 1,100 wagons. An accredited
rail-service provider in six Australian states (all but Tasmania),
GWA provides intermodal service six days per week on the
Adelaide-to-Darwin corridor as well as intrastate haulage of bulk
commodities including grain, steel and minerals, and operates a
coal haulage service under contract in New South Wales transporting
approximately 40 million tonnes annually.
About MIRA
MIRA is part of Macquarie Asset Management, the asset management
arm of global financial services institution Macquarie Group.
MIRA pioneered Infrastructure as an asset class for
institutional investors. For more than 20 years it has been
investing in and managing the assets that people use every day –
extending beyond infrastructure to real estate, agriculture and
energy.
MIRA’s regional teams of operational and financial experts work
where MIRA’s funds invest and their portfolio companies operate.
They are part of a far reaching global team which helps MIRA
clients to see across the regions and deep into local markets.
MIRA has assets under management of $US104 billion invested in
130 portfolio businesses, ~300 properties and 2.8 million hectares
of farmland (as at 31 March 2016).
For more information, visit www.mirafunds.com
This press release contains “forward-looking statements”
relating to the proposed transaction by G&W and GWA. Such
forward-looking statements are based on current expectations and
involve inherent risks and uncertainties. For a discussion of such
risks and uncertainties, which could cause actual results to differ
from those contained in the forward-looking statements, see “Risk
Factors” in G&W’s Annual Report on Form 10-K for the most
recently ended fiscal year. G&W does not undertake, and
expressly disclaims, any duty to publicly update any
forward-looking statement, whether as a result of new information,
future events, or otherwise, except as required by law.
(1) Earnings before interest and taxes (EBIT), adjusted EBIT,
earnings before interest, taxes, depreciation and amortization
(EBITDA), adjusted EBITDA and adjusted Net Income are non-GAAP
financial measures and are not intended to replace financial
measures calculated in accordance with GAAP. The information
required by Item 10(e) of Regulation S-K under the Securities Act
of 1933 and the Securities Exchange Act of 1934 and Regulation G
under the Securities Exchange Act of 1934, including a
reconciliation to the most directly comparable financial measures
calculated in accordance with GAAP, is included in the tables
attached to this press release.
Non-GAAP Financial Measures
This press release contains references to earnings before
interest and taxes (EBIT), adjusted EBIT, earnings before interest,
taxes, depreciation and amortization (EBITDA), adjusted EBITDA and
adjusted Net Income, which are "non-GAAP financial measures" as
this term is defined in Item 10(e) of Regulation S-K under the
Securities Act of 1933 and the Securities Exchange Act of 1934 and
Regulation G under the Securities Exchange Act of 1934. In
accordance with these rules, G&W has reconciled these non-GAAP
financial measures to their most directly comparable U.S. GAAP
measures.
Management views these non-GAAP financial measures as important
measures of G&W's operating performance. These non-GAAP
financial measures are not intended to represent, and should not be
considered more meaningful than, or as an alternative to, their
most directly comparable GAAP measures. These non-GAAP financial
measures may be different from similarly-titled non-GAAP financial
measures used by other companies.
The following tables set forth reconciliations of each of these
non-GAAP financial measures to their most directly comparable GAAP
measure ($ in AUD in millions).
GWA Adjusted Net Income
Reconciliation
GWA Net income $ (4) Add back certain items
Australia impairment and related costs 28 Corporate development and
related costs 5 Restructuring costs 1 Provision for income taxes
(8) Adjusted net income $ 22
GWA Adjusted EBIT and EBITDA
Reconciliation
ThreeMonthsEnded
March 31,2016
ThreeMonthsEnded
June 30, 2016
ThreeMonthsEndedSeptember30, 2016
ThreeMonthsEndedDecember31, 2016
-Guidance
TwelveMonthsEndedDecember31, 2016
-Guidance
Net income/(loss) $ (14.9) $ 6.0 $ 1.1 $ 3.7 $ (4.1) Add back:
Provision for/(benefit from) income taxes (3.3) 3.0 1.1 1.7 2.5
Interest expense - net 3.3 3.2 2.9 2.8 12.2 EBIT $ (14.9) $ 12.2 $
5.0 $ 8.2 $ 10.6 Depreciation and amortization expense 9.3 9.7 9.4
9.9 38.3 EBITDA $ (5.6) $ 21.9 $ 14.4 $ 18.1 $ 48.9 Add back
certain items Australia impairment and related costs 28.2 - - -
28.2 Corporate development and related costs 0.2 1.1 3.9 0.1 5.3
Restructuring costs 0.9 - 0.1 - 1.0 Net gain on sale of assets - -
- 0.2 0.2 Adjusted EBIT $ 14.4 $ 13.3 $ 9.0 $ 8.5 $ 45.3 Adjusted
EBITDA $ 23.7 $ 23.0 $ 18.4 $ 18.5 $ 83.6 Adjusted EBIT
Rounded $ 45 Adjusted EBITDA Rounded $ 80
GWA Combined EBIT and EBITDA
Reconciliation
GWA
IncrementalTransactionImpact
GWACombined
Net income $ (4) $ 4 $ - Add back: Provision income taxes 2 1 3
Interest expense - net 12 53 65 EBIT $ 11 $ 58 $ 69 Depreciation
and amortization expense 38 42 80 EBITDA $ 49 $ 100 $ 149 Add back
certain items Australia impairment and related costs 28 - 28
Corporate development and related costs 5 - 5 Restructuring costs 1
- 1 Adjusted EBIT $ 45 $ 58 $ 103 Adjusted EBITDA $ 84 $ 100 $ 184
Adjusted EBIT Rounded $ 45 $ 55 $ 100 Adjusted EBITDA
Rounded $ 80 $ 100 $ 180
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161019006629/en/
Genesee & Wyoming Inc.Media:Michael Williams,
203-202-8916mwilliams@gwrr.comorInvestor:T.J. Gallagher,
203-202-8904tjgallagher@gwrr.comorTom Savage,
203-202-8914tsavage@gwrr.com
Genesee and Wyoming (NYSE:GWR)
Historical Stock Chart
From Mar 2024 to Apr 2024
Genesee and Wyoming (NYSE:GWR)
Historical Stock Chart
From Apr 2023 to Apr 2024