Monday, July 1, 2019

Huge Rail Freight Deal Sees Logistics Services on Three Continents Change Hands

Multimodal and Container Specialists Included in Sale as Union Concerned
Shipping News Feature
US – EUROPE – AUSTRALIA – In a huge deal which will come as little surprise to many, a consortium led by Canadian financiers Brookfield Infrastructure and Singapore based GIC, have agreed to purchase international railroad group Genesee & Wyoming Inc (G&W), a company which owns or leases 120 freight railroads, principally in the US, but with interests across the world including the UK's largest rail maritime intermodal operator and second-largest freight rail provider, Freightliner.

In Britain that purchase of Freightliner in 2015 giving access to other European services was swiftly followed by the acquisition of the container sales, conversion and logistics group Pentalver two years later. The deal has already brought concerns from Britain’s RMT Union about the sale to a “Singapore infrastructure fund, [in which] an important freight provider is being traded between foreign owners whose priority will not be the UK economy, UK jobs and providing a rail freight infrastructure that can meet the challenges of the future green economy.”

G&W’s six North American regions serve 41 US states and four Canadian provinces and include 114 short line and regional freight railroads with more than 13,000 track-miles. G&W’s Australia Region serves New South Wales, the Northern Territory and South Australia and operates the 1,400-mile Tarcoola-to-Darwin rail line. The Australia Region is 51.1% owned by G&W and 48.9% owned by a consortium of funds and clients managed by Macquarie Infrastructure and Real Assets.

The acquisition will cost the consortium approximately $8.4 billion including debt and turns G&W into a private company. Through its subsidiaries worldwide, the business provides transportation infrastructure services over more than 26,000 kilometres of track, providing access to a diversified customer base. Jack Hellmann, G&W Chairman and Chief Executive Officer, commented:

“We believe this transaction is an excellent outcome for all G&W stakeholders. For our current stockholders, the sale price realizes significant value and represents a 39.5% premium to our March 8th share price. And for long-term investors who have owned our shares for the past two decades, the sale price represents a return of more than 5,400%.

“For our customers, employees, and Class I partners, the 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.

”They are also fully supportive of our business plan, which will continue to be focused on safety, customer service, and growing our footprint to provide more opportunity for our people. We also expect this transaction will allow us to further enhance our business as we benefit from Brookfield Infrastructure/GIC’s expertise in real estate and technology, as well as relationships with their rail-centric/complementary portfolio companies.”

Pursuant to the agreement, each issued and outstanding share of G&W will be converted into the right to receive $112 per share in cash. The Transaction price of $112 per share of G&W common stock represents a 39.5% premium to the unaffected per share price of $80.28 on March 8, 2019, the day prior to initial media speculation of a potential transaction.

The Transaction is expected to close by year end or early 2020 and is subject to customary closing conditions, including approval by G&W stockholders holding 66.66% of the outstanding common stock, required regulatory approvals that include approval by the Committee on Foreign Investment in the United States, the US Surface Transportation Board, and certain competition and antitrust approvals. Sam Pollock, Chief Executive Officer of Brookfield Infrastructure, said:

“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. G&W provides critical transportation services to more than 3,000 customers, and its cash flows have proven to be highly resilient over many years. Brookfield Infrastructure is well suited to work with the company to continue to improve the business, given our significant experience owning and operating rail, ports and other large scale, transportation infrastructure businesses.”

Brookfield Infrastructure’s investment will be approximately $500 million of equity. The remainder of the business will be owned by Brookfield Infrastructure’s institutional partners and GIC. Brookfield Infrastructure’s investment will be funded from existing liquidity which totalled approximately $1.9 billion at June 30, 2019.

Due to the pending sale, G&W will cease reporting monthly carloads and will not hold a conference call for its second quarter 2019 financial results. G&W expects to file its second quarter 2019 10-Q by close of business on August 9, 2019. Ang Eng Seng, Chief Investment Officer for Infrastructure at GIC, observed:

“As a long-term investor, GIC is confident G&W will continue to generate steady profitability, given its diversified operations and customer base. We look forward to partnering with G&W’s management and Brookfield Infrastructure to support the future growth of the company.”