In a transaction valued at $400 million, the Greenbrier Companies, Inc. (GBRX) has entered into an agreement to acquire the manufacturing business of American Railcar Industries (ARI) from ITE Management LP (ITE), the hedge fund that bought ARI from investor Carl Icahn in December 2018. GBX said the result will be “a larger U.S. railcar manufacturing footprint, adding ARI’s two manufacturing facilities in Arkansas. It will employ more U.S. workers at cost-competitive and flexible facilities, with a more-efficient delivery model throughout North America, due to lower transportation costs.”
GBRX will gain two ARI railcar manufacturing facilities in Arkansas and five other operations that provide a range of railcar component and parts supply. These operations build hopper car outlets, tank car valves, axles, castings and railcar running boards, among other ancillary railcar products. “Significant manufacturing efficiencies and cost savings are expected from the acquisition, along with a skilled workforce and geographic advantages throughout North America,” the company noted, adding that, within the first 12 months, it expects adjusted diluted earnings per share accretion to exceed 20%, with free cash flow accretion and “at least $30 million in annual run-rate synergy opportunities.”
GBRX said it expects the acquisition to “strengthen [our] core North American product base through complementary and supplementary railcar and component offerings, including vertical supply chain benefits; enhance [our] production footprint to better serve a geographically diverse customer base; provide new cost-saving opportunities through use of best practices, increased vertical integration, maximized production runs, improved supply chain efficiencies and lower transportation costs to key markets; increase railcar offerings with access to vertically integrated parts and components; and broaden the customer base, capitalizing on non-overlapping relationships with strategic operating lessors, Class I and short line railroads and shippers.”
The $400 million purchase price is based on adjustments for net tax benefits accruing to GBRX valued at $30 million. The gross purchase price totals $430 million. It includes $30 million for capital expenditures on railcar lining operations and other facility improvements at ARI. Also included in gross purchase price are convertible notes issued by GBRX to ARI in the principal amount of $50 million. The balance is cash consideration.
“We expect the acquisition to be meaningfully accretive and position Greenbrier for growth in our core manufacturing and engineering business in North America,” said Chairman and CEO William A. Furman. “Cost synergies and economies of scale are expected to benefit our customers, including shippers, leasing companies and North American railroads. With a broader product portfolio and efficiencies extending from a larger operations base in America, we see this acquisition as a unique opportunity for Greenbrier to extend its position as a global leader in railcar manufacturing, with an increase in our total U.S.-based production and an expansion of our American-based workforce. We are especially pleased to work with ITE on this acquisition, since we already enjoy a strong relationship with them as a valued syndication customer.”
The transaction is subject to customary regulatory reviews and approvals. After receiving the required approvals, GBRX expects the deal with ITE to close in calendar-year 2019. BofA Merrill Lynch and Goldman Sachs & Co. LLC are serving as GBRX financial advisors.
Carl Icahn sold ARI to ITE in December 2018, realizing a 423% return on investment—roughly $757.2 million. Icahn’s involvement with ARI goes back to the 1980s, when he originally acquired a controlling interest in ACF industries (ARI’s predecessor) as part of a leveraged buyout, where he outbid E.M. Warburg, Pincus & Co. In the early 1990s, Icahn recapitalized ACF and took roughly $475 million for his firm, Highcrest Investor Corp.
The deal brings Greenbrier full-circle, as Carl Icahn unsuccessfully attempted to acquire GBRX and merge it with ARI—twice, in 2008 and 2012.