Genesee & Wyoming Acquisition Boosts Rail Stocks
Short-line railroad operator Genesee & Wyoming was acquired Monday by a consortium comprised of Brookfield Infrastructure and Singapore's sovereign wealth fund, GIC.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
For nearly 80 years since its founding in 1899, the Genesee & Wyoming Railroad’s sole asset was a 14-mile stretch of track in western New York. Since 1977, the company, renamed Genesee & Wyoming Inc. (NYSE: GWR), has grown to operate short-line and regional freight railroads on more than 15,000 miles of track in North America, Australia and Europe.
On Monday, the railroad agreed to be acquired by affiliates of Canada-based Brookfield Infrastructure Partners L.P. (NYSE: BIP) and a consortium including Singapore’s sovereign wealth fund GIC. Including debt, the transaction is valued at $8.4 billion. Shareholders will receive $112 per share in cash, a 12% premium to Friday’s closing price of $100.00 but a 39.5% premium to the stock’s closing price on March 8 when the first media story on a possible transaction was published.
G&W’s long-term debt totaled about $2.4 billion at the end of the first quarter of this year, about $1 billion more than the amount the company paid in 2012 when it acquired RailAmerica for about $1.4 billion. Brookfield is investing approximately $500 million in the purchase and the remaining cash will come from Brookfield’s partners and GIC.
[nativounit]
G&W board chair and chief executive officer, Jack Hellmann, commented:
… [F]or long-term investors who have owned our shares for the past two decades, the sale price represents a return of more than 5,400%. … [T]he long-term investment horizon of Brookfield Infrastructure and GIC as seasoned infrastructure investors is perfectly aligned with the long lives of G&W railroad assets, which are integral to the local economies that we serve in North America and around the world.
Sam Pollock, CEO of Brookfield Infrastructure, added, “This is a rare opportunity to acquire a large-scale transport infrastructure business in North America. G&W will be a significant addition to our global rail platform and will expand our presence in this sector to four continents.”
GIC’s chief investment officer, Ang Eng Seng, noted, “As a long-term investor, GIC is confident G&W will continue to generate steady profitability, given its diversified operations and customer base.” In January 2018, GIC participated with Paul Singer’s Elliott Management in an equity investment of $2.5 billion in FirstEnergy Corp. (NYSE: FE | FE Price Prediction). Since that time, FirstEnergy’s stock has risen by around 33%.
G&W shares traded up nearly 9% Monday morning, at $108.76 in a 52-week range of $68.27 to $108.91. The high was posted earlier in the morning. Brookfield shares traded up about 0.9% to $43.32, in a 52-week range of $32.26 to $43.37, also a new 52-week high.
All the railroad stocks in the Dow Jones Transportation Average traded higher Monday as well, with Union Pacific Corp. (NYSE: UNP) up 2.1% and CSX Corp. (NYSE: CSX) up 1.9%. The index itself was up about 0.6%
[recirclink id=557597]
[wallst_email_signup]
Contact [email protected] for any questions or corrections.
Paul Ausick has been writing for 247Wallst.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.
He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.
