STB appoves of Genesee & Wyoming’s acquisition of RailAmerica

The Department of Transportation’s Surface Transportation Board (STB) last week signed off on the merging of the two largest short line and regional rail operators in North America.

In July the Genesee & Wyoming (G&W) railroad said it would acquire RailAmerica for an all-cash purpose price of $27.50 per share—or roughly $1.39 billion.

STB officials wrote in a decision to the two railroads, whom were seeking STB approval for the discussion, that it determined it was a “minor transaction” as defined by its regulations.

“The Board finds that the application is complete…and clearly will not have any anticompetitive effects,” STB officials said in its decision.

But it also stated that this is not a final determination and its findings may be rebutted by filings and evidence submitted into the record for this proceeding, adding that it the STB will give careful consideration to any claims that the transaction would have anticompetitive effects that are not apparent from the application itself.

When the deal was first announced, G&W officials said that this acquisition would 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.

“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,” said G&W President and CEO Jack Hellman on a conference call in July.

Hellman also explained that the transaction, which is the largest one in the history of G&W, 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.”

When the transaction was first announced, it was positively received by a prominent Wall Street analyst.

“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.”