Genesee & Wyoming Inc. (GWR) has agreed to buy RailAmerica
Inc. (RA) for $1.39 billion in cash, a move that combines the two
largest short-line and regional railroad operators in North
America.
Genesee & Wyoming said the deal would diversify its customer
and commodity bases, increase its total revenue by nearly
two-thirds to about $1.4 billion and double its North American
revenue to about $1.1 billion. Following the transaction, Genesee
will have 111 railroads.
RailAmerica shareholders will receive $27.50 a share, an 11%
premium over Friday's closing price. Shares, which were inactive
premarket, hit an all-time high of $26.90 earlier this month and
have risen 67% this year.
Genesee expects the RailAmerica transaction to close in the
third quarter of next year. The company will fund the transaction
and the simultaneous refinancing of its existing debt with about $2
billion of new debt and $800 million of equity or equity-linked
securities. GWI has received $2.3 billion of committed debt
financing from Bank of America Corp's (BAC) Merrill Lynch and $800
million of committed equity financing from Carlyle Group L.P. (CG)
of which it has agreed to take a minimum of $350 million through a
private placement of two-year mandatorily convertible preferred
stock.
Genesee & Wyoming expects to save at least $36 million from
synergies and said it expects the accretion to per-share earnings
to be greater than 10% in 2013 if it is approved and it fully
integrates RailAmerica's railroads by the fourth quarter of this
year.
Earlier this month, Genesee said traffic decreased 6.9% for the
second quarter, as coal and coke carloads sharply declined.
The operator in short-line and regional freight railroads has
faced a steep decline in coal traffic as a glut of cheap natural
gas continues to erode fuel demand.
Shares of Genesee closed at $55.98 Friday and were inactive in
recent premarket trading. The stock is down 7.6% so far this
year.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
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