Genesee & Wyoming Acquisition Boosts Rail Stocks

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.

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). 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%