GREENWICH, Conn. & JACKSONVILLE, Fla.--(BUSINESS WIRE)--Jul. 23, 2012--
Genesee & Wyoming Inc. (GWI) (NYSE: GWR) and RailAmerica, Inc. (NYSE:
RA) jointly announced today that they have entered into an agreement
under which GWI will acquire RailAmerica for an all cash purchase price
of $27.50 per share. GWI’s acquisition of RailAmerica will combine the
two largest short line and regional rail operators in North America,
strengthening GWI’s ability to serve its industrial customers and Class
I railroad partners. In addition, 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 do business.
GWI expects to fund the transaction and the simultaneous refinancing of
its existing debt with approximately $2.0 billion of new debt and
approximately $800 million of equity or equity-linked securities. GWI
has received $2.3 billion of committed debt financing from BofA Merrill
Lynch (“BofAML”) and $800 million of committed equity financing from The
Carlyle Group (“Carlyle”) (NASDAQ: CG) of which it has agreed to take a
minimum of $350 million through a private placement of two-year
mandatorily convertible preferred stock (“The Carlyle Convertible”) from
Carlyle Partners V, a $13.7 billion U.S. buyout fund. The Carlyle
Convertible has a coupon of 5% per annum for two years and is
mandatorily convertible at a conversion price of $58.49. GWI has the
option to fund up to an additional $450 million of The Carlyle
Convertible on the same terms, subject to certain conditions.
Alternatively, GWI may instead choose to fund the $450 million through
the public issuance of equity or equity-linked securities.
GWI will conduct a live conference call and webcast this morning at 11
a.m. EDT. In the U.S., call (800) 553-0326; outside the U.S., call (612)
332-0345. Management will be referring to a slide presentation that will
be available at www.gwrr.com/investors
prior to the conference call. The webcast will be archived at www.gwrr.com/investors,
and telephone replay is also available for 30 days beginning at 1 p.m.
EDT today by dialing (800) 475-6701 (or outside U.S., dial
320-365-3844). The access code is 255426.
Additional Highlights of the Transaction
The transaction combines the two largest short line and regional
railroad operators in North America, with 108 railroads and strong
exposure to eventual U.S. economic recovery.
Estimated pro forma Total Debt to EBITDA of 4.0x at the end of 2012,
which is expected to decrease to approximately 3.0x by the end of 2013.
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 Q3:2012 while it awaits formal STB approval of GWI’s
application to control RailAmerica’s railroads. Upon formal STB
approval, GWI would be able to fully integrate RailAmerica. STB formal
approval may be as early as Q4:2012 but could be delayed until Q3:2013.
While the RailAmerica railroads are held in a voting trust, GWI
expects to account for the acquisition using the equity method of
accounting and will not realize the cost synergies of the business
combination. Upon integration, cost savings are expected to be at
least $36 million (75% realized within one year of close; 100%
realized within 18 months of close).
If GWI is approved to fully integrate RailAmerica’s railroads by
Q4:2012, EPS accretion is expected to be greater than 10% in 2013.
The $27.50 per share purchase price represents a premium of 10.6% over
the closing stock price as of July 20, 2012, the last trading day
prior to this announcement, and a premium of 27.6% over the closing
stock price as of May 21, 2012, the last trading day prior to the date
on which RailAmerica announced that it was exploring strategic
Overview of Combined Operations
Using the previously reported results of GWI and RailAmerica, the
transaction increases GWI’s total revenues by nearly two-thirds to
approximately $1.4 billion (PF2011) and doubles North American revenue
to approximately $1.1 billion (PF2011). 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 transaction significantly increases GWI’s customer and commodity
diversification. In 2011, on a combined basis, no single customer would
have represented more than 3% of pro forma revenues, and no single
commodity group would have represented more than 16% of pro forma
freight revenues. On a geographic basis, GWI’s footprint of railroads
will grow from 24 U.S. states to 37 U.S. states, while the U.S. overall
will represent approximately 70% of GWI’s pro forma revenue, with
Australia at 20%, Canada at 10% and Europe at less than 1%. Following
the transaction, GWI expects to originate or terminate more than 4% of
carload traffic in the U.S., with volumes well balanced across all of
the Class I carriers.
GWI is an experienced acquirer of short line railroads, having
integrated 65 railroads through 36 acquisitions since 1985. The
operational integration of RailAmerica will be led by a joint
integration team from both companies.
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
“In addition, the transaction is transformational for our North American
operations, as GWI will now operate 108 railroads over more than 12,000
track miles [see map].
From a commercial standpoint, we believe that this footprint not only
provides us with strong leverage to any eventual recovery of the U.S.
economy but also creates a powerful platform for future industrial
development along railroads in the 37 U.S. states in which we will do
“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. For our combined employee workforce, we will bring
together the best attributes of GWI and RailAmerica to further sharpen
business practices across all of our railroads to create an even
stronger company for the long term. From a community standpoint, we will
continue to embrace our core belief that railroads are uniquely woven
into the fabric of the communities where we do business, and we will
maintain an open dialogue with government officials and all stakeholders
to foster local economic development.
“The timing of the transaction is excellent for us. First, we have now
grown to the size and management capabilities to integrate RailAmerica
successfully. Second, we anticipate locking in low long-term interest
rates in the context of our BofAML debt commitment and then expect to
rapidly de-lever our business through the powerful free cash flow of the
combined company. Finally, we remain confident in our ability to execute
our acquisition and investment strategy to sustain our long-term EPS
growth target of 15% - 20%.”
John Giles, President and CEO of RailAmerica commented, “This is an
exciting day for both RailAmerica and Genesee & Wyoming. 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.”
In 2013, GWI estimates that RailAmerica will generate revenues of
approximately $650 million, operating income of $150 million (excluding
any GWI cost savings), depreciation and amortization of $60 million and
$67 million of capital expenditures for track and equipment improvements
(N.B. total capital expenditures are estimated to be $100 million in
2013 including grant matches and growth projects). Until the STB allows
GWI to fully integrate the RailAmerica railroads, GWI will own the
acquisition through a voting trust and expects to account for its
ownership using the equity method of accounting. Following formal STB
approval of GWI’s application to control the RailAmerica railroads, GWI
will commence the integration of the two companies. GWI expects $36
million of initial cost savings, with $28 million realizable in the
first year following STB approval.
Assuming full integration of the acquisition, GWI anticipates its
consolidated book tax rate will be approximately 35%. GWI estimates that
its pro forma shares outstanding will be 56.8 million (43.2 million
diluted shares currently outstanding plus
6.0 million shares from the $350 million Carlyle Convertible plus
7.6 million shares from the issuance of new common stock (assuming GWR
closing price of $55.98 on July 20, 2012). Note that in lieu of the
issuance of the new common stock, GWI may choose to fund additional
mandatorily convertible preferred with Carlyle (i.e., greater than the
initial $350 million) or issue publicly traded mandatorily convertible
Applying the above assumptions, if the STB approves the full integration
of RailAmerica’s railroads by the end of 2012, GWI’s EPS accretion is
expected to be greater than 10% in 2013. In addition, GWI expects that
its complementary tax position with RailAmerica should yield even higher
free cash flow accretion over the next several years. The value of
RailAmerica’s tax assets is approximately $130 million (which includes
tax-affected NOLs as well as certain tax credits), and GWI expects to
utilize these tax benefits over the next 2-3 years.
Separately, GWI estimates that it will recognize $71 million of total
transaction-related costs on its income statement associated with the
acquisition, of which $51 million will be recognized when the
transaction closes into a voting trust, and an estimated $20 million
will be recognized following STB approval of GWI’s control of the
RailAmerica railroads. An additional $42 million of financing fees will
be recorded on GWI’s balance sheet for the anticipated equity issuance
and the committed debt, with the latter being amortized over the life of
the credit facilities.
GWI expects to draw approximately $2.0 billion of the available $2.3
billion in new senior secured debt facilities committed by BofAML, which
is estimated to result in approximate pro forma leverage of 4.0x Debt /
EBITDA as of the end of 2012, assuming partial credit for the
anticipated $36 million of initial cost savings. The expected free cash
flow generation of the combined business is anticipated to de-lever GWI
to approximately 3.0x Debt / EBITDA by the end of 2013, which assumes
GWI has control of the RailAmerica railroads from the beginning of 2013
and is able to recognize cost savings.
The $2.0 billion in senior secured debt is expected to have an initial
weighted-average cost of debt of 4.8% based on current LIBOR rates. GWI
expects to have approximately $300 million of undrawn revolver capacity
at financial close. The committed facilities include a $425 million
senior secured revolver, an $875 million senior secured Term Loan A and
a $1 billion senior secured Term Loan B. Initial pricing for the
revolver and Term Loan A are estimated to be L+250 bps, and initial
pricing for the Term Loan B is expected to be L+375bps, with a 1% LIBOR
floor. GWI anticipates it will enter into interest rate hedging
contracts to fix the long-term cost of $750 million of debt.
The $350 million Carlyle Convertible has a coupon of 5% per annum and is
mandatorily convertible after two years at a conversion price of $58.49,
which is up 10% from a reference price of $53.17 (“Reference Price”).
GWI’s call option for amounts over $350 million and up to $800 million
will be on the same terms if (i) called prior to the earlier of 10
calendar days following STB approval of a voting trust or 67 calendar
days following the application for STB approval of the voting trust
(“Call Date”), or (ii) if the current 30-day VWAP exceeds 85% of the
Reference Price, or $45.19. If called after the Call Date and when the
current 30-day VWAP is less than 85% of the Reference Price (i.e., below
$45.19), the Reference Price will reset to the then current 30-day VWAP,
and the resulting security amounts over $350 million called by GWI would
have a 5% coupon, a 2 year mandatory conversion term, and convert at a
10% premium to the new reference price.
The closing of the Transaction is subject to the approval of the Surface
Transportation Board. GWI will seek STB consent to close the transaction
into a voting trust, which will be managed by a voting trustee until GWI
is granted approval from the STB to control the RailAmerica railroads.
In addition to receipt of STB approvals, consummation of the transaction
is subject to customary conditions, including without limitation (i) the
approval by the holders of at least a majority of the outstanding shares
of RailAmerica’s common stock entitled to vote, and, if obtained by
written consent, an information statement shall have been cleared by the
SEC and sent to stockholders of RailAmerica, (ii) the absence of any law
restraining, enjoining or prohibiting the transaction, (iii) the absence
of any action or proceeding by any governmental entity challenging,
materially delaying or otherwise restraining or prohibiting the
transaction or seeking to obtain material damages with respect to the
transaction, (iv) the expiration or early termination of the waiting
period applicable to the consummation of the transaction under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (if
applicable), the Investment Canada Act, R.S. 1985, c. 28 (1st Supp.), as
amended, Competition Act, R.S.C. 1985, c. C-34, as amended, and any
other applicable foreign competition law. Moreover, each party’s
obligation to consummate the transaction is subject to certain other
conditions, including without limitation, the accuracy of the other
party’s representations and warranties and the other party’s compliance
with its covenants and agreements contained in the merger agreement, in
each case subject to customary materiality qualifiers.
BofA Merrill Lynch served as financial advisors to GWI. Simpson Thacher
& Bartlett LLP, Steptoe & Johnson LLP and Thorpe Reed & Armstrong, LLP
served as legal advisors.
Deutsche Bank Securities served as financial advisors to RailAmerica and
provided a fairness opinion to its shareholders. Skadden, Arps, Slate,
Meagher & Flom LLP and Sidley & Austin served as legal advisors.
GWI owns and operates short line and regional freight railroads and
provides railcar switching services in the United States, Australia,
Canada, the Netherlands and Belgium. In addition, we operate the
Tarcoola to Darwin rail line, which links the Port of Darwin with the
Australian interstate rail network in South Australia. Operations
currently include 66 railroads organized in 10 regions, with more than
7,600 miles of owned and leased track and approximately 1,400 additional
miles under track access arrangements. We provide rail service at 17
ports in North America and Europe and perform contract coal loading and
railcar switching for industrial customers.
About The Carlyle Group
The Carlyle Group is a global alternative asset manager with $159
billion of assets under management in 94 active funds and 63 fund of
funds vehicles as of March 31, 2012. Carlyle invests across four
segments – Corporate Private Equity, Real Assets, Global Market
Strategies and Fund of Funds Solutions – in Africa, Asia, Australia,
Europe, the Middle East, North America and South America. Carlyle has
developed expertise in various industries, including: aerospace, defense
& government services, consumer & retail, energy, financial services,
healthcare, industrial, technology & business services,
telecommunications & media and transportation. The Carlyle Group employs
more than 1,300 people in 32 offices across six continents. www.carlyle.com.
RailAmerica, Inc. owns and operates short line and regional freight
railroads in North America, operating a portfolio of 45 individual
railroads with approximately 7,500 miles of track in 28 U.S. states and
three Canadian provinces.
This press release contains “forward-looking statements” relating to the
proposed acquisition of RailAmerica by Genesee & Wyoming. Such
forward-looking statements are based on current expectations and involve
inherent risks and uncertainties, including factors that could change or
delay any of them, and could cause actual outcomes and results to differ
materially from current expectations. No forward-looking statement can
be guaranteed. Among other risks, there can be no guarantee that the
acquisition will be completed within the anticipated time frame or at
all or that the expected benefits of the acquisition will be realized.
Factors that could cause actual results to differ materially include,
but are not limited to: (1) the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger
agreement; (2) the outcome of any legal proceedings that may be
instituted against RailAmerica or GWI and others following announcement
of the merger agreement; (3) the inability to complete the merger due to
the failure to satisfy the conditions to the merger; (4) risks that the
proposed transaction disrupts current plans and operations and potential
difficulties in employee retention as a result of the merger; (5) the
ability to recognize the benefits of the merger; (6) legislative,
regulatory and economic developments; and (7) other factors described in
GWI’s and RailAmerica’s filings with the SEC. Many of the factors that
will determine the outcome of the subject matter of this communication
are beyond GWI’s and RailAmerica’s ability to control or predict.
Forward-looking statements in this press release should be evaluated
together with the many uncertainties that affect GWI’s business,
particularly those identified in the cautionary factors discussed in
GWI’s annual report on Form 10-K for the year ended December 31, 2011.
Forward-looking statements in this press release should be evaluated
together with the many uncertainties that affect RailAmerica’s business,
particularly those identified in the cautionary factors discussed in
RailAmerica’s annual report on Form 10-K for the year ended December 31,
2011. Any statements relating to the future performance of the combined
company are made solely by GWI. GWI and RailAmerica do 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.
No person has commenced soliciting proxies in connection with the merger
referenced in this press release, and this press release is neither an
offer to purchase nor a solicitation of an offer to sell securities.
Additional Information and Where to Find It
In connection with the proposed acquisition, RailAmerica intends to file
relevant materials with the SEC, including RailAmerica’s information
statement in preliminary and definitive form. RailAmerica stockholders
are strongly advised to read all relevant documents filed with the SEC,
including RailAmerica information statement, because they will contain
important information about the proposed transaction. These documents
will be available at no charge on the SEC’s website at www.sec.gov.
In addition, documents will also be available for free from RailAmerica
by contacting RailAmerica Investor Relations at firstname.lastname@example.org.
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Source: Genesee & Wyoming Inc.
Genesee & Wyoming Inc.
Chris Ullman, +1-202-729-5450