--Genesee & Wyoming agrees to buy RailAmerica for $1.39
billion in cash
--Standard & Poor's puts ratings on RailAmerica on watch
with developing implications
--Genesee expects the RailAmerica transaction to close in the
third quarter of next year
(Adds S&P watch and closing prices, in the third, fourth and
ninth paragraphs.)
By Saabira Chaudhuri
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 hit an all-time
high earlier Monday, closed 9.8% higher at $27.25. The stock is up
83% since the start of the year.
The deal prompted Standard & Poor's Ratings Services to
place its ratings on RailAmerica on watch with developing
implications. S&P, which currently rates RailAmerica three
notches into junk territory at double-B-minus, said it will review
the pro-forma business and financial-risk profiles and will discuss
with management its financial policy, liquidity and capital
structure for the combined entity.
Genesee said it 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. Genesee 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 if 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 of short-line and regional-freight railroads has
faced a steep decline in coal traffic as a glut of cheap natural
gas continues to erode demand for coal.
Shares of Genesee closed 35 cents higher at $56.33. The stock is
down 7% since the start of the year.
--Nathalie Tadena contributed to this article.
Write to Saabira Chaudhuri at
saabira.chaudhuri@dowjones.com.
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