Greenbrier plus ARI: Let the games begin

Written by William C. Vantuono, Editor-in-Chief

The Greenbrier Companies, one of only a handful of remaining domestic railcar manufacturing companies, late yesterday said that Carl Icahn’s current attempt to have American Railcar Industries (ARI), of which he is majority shareholder, acquire Greenbrier (in which he also has a stake) “grossly undervalues the company and is not in the best interests of Greenbrier stockholders.”

“While Icahn’s 13D/A [filing with the U.S. Securities and Exchange Commission] disclosed a conditional proposal to acquire Greenbrier for $20 per share in cash (about $542 million), we noted that in previous conversations with Greenbrier, Icahn (pictured) talked about an acquisition of Greenbrier at a price of between $20 and $22 per share in cash,” Greenbrier said. “The Greenbrier Board of Directors believes a price range of $20 to $22 per share is inadequate.”

Greenbrier noted that its discussions with Icahn thus far have also involved Greenbrier acquiring ARI “at a modest premium, taking into account the current full valuation of ARI stock. We have repeatedly made clear to Icahn our interest in acquiring ARI. . . . The Greenbrier board believes that a combination of Greenbrier and ARI could be beneficial to both companies and their stockholders, and that there could be substantial synergies achieved through such a combination. Our Board remains ready and willing to continue discussions with Icahn about various combinations of Greenbrier and ARI and to consider any combination of Greenbrier and ARI that would be in the best interest of our stockholders. However, our Board will not support a transaction that undervalues [Greenbrier] and the potential benefits to ARI, or overvalues ARI.”

Greenbrier said its “integrated business model and diversified product offerings enhance financial performance across the business cycle, create powerful cross-selling opportunities and capture value for both Greenbrier and its customers throughout the life of a railcar. Greenbrier’s diverse product offerings serve a broad array of commodities, such that we are not dependent on only a few drivers of demand. Over the past several years, Greenbrier has grown its [market] share, particularly in tank and hopper cars, as a result of its strategy. We continue to ramp up tank car production to an annual rate of 3,000 cars, three times as many tank cars as we delivered in FY 2012, with a targeted 20% share of normalized demand in the tank car segment. Over the cycle, demand for tank cars is forecasted to slow down and be replaced by demand for other railcar types. Greenbrier is well-positioned to adapt to these changes. In light of tour integrated strategy and low-cost manufacturing footprint, as well as the benefits to Greenbrier of a more broad-based economic recovery, Icahn’s proposal grossly undervalues the company.”

Goldman, Sachs & Co. and Bank of America Merrill Lynch are serving as Greenbrier’s financial advisers. Skadden, Arps, Slate, Meagher & Flom LLP and Tonkon Torp LLP are legal advisers.

Greenbrier, headquartered in Lake Oswego, Ore., is a major supplier of transportation equipment and services to the railroad industry. Greenbrier builds new freight cars in its four manufacturing facilities in the U.S. and Mexico and marine barges at its U.S. facility. It also repairs and refurbishes freight cars and provides wheels and railcar parts at 39 locations across North America. Greenbrier builds and refurbishes freight cars for the European market through its operations in Poland and various subcontractor facilities throughout Europe. Greenbrier Leasing Company LLC owns approximately 10,000 railcars. Greenbrier Management Service handles approximately 221,000 railcars.

Wall Street is taking a wait-and-see attitude. “The $542 million offer by Carl Icahn-controlled ARI for peer Greenbrier, where Icahn also owns a stake, makes sense strategically, but will face a tough antitrust review, according to analysts,” The Wall Street Journal said Wednesday morning. “The companies ‘have a complementary product mix, with ARI offering mostly tank cars and covered hopper cars for sand and grain while Greenbrier’s] bread-and-butter is intermodal cars,’ said Sterne Agee analysts. But both Sterne Agee and Jefferies analysts warned—again—that there are high antitrust hurdles, with Jefferies going as far as to warn the deal would ‘struggle’ to get approved. Sterne Agee said the industry is already heavily consolidated and the combination of Greenbrier and ARI would comprise 37% of the market this year, the top position. Add in the next two biggest makers of railcars, and 68% of all deliveries this year would be concentrated at the top of the industry, the analysts said. Meanwhile, Sterne Agee added the $20 per share offer ‘seems low…at first blush.’”

Carl Icahn, described by Forbes as “America’s richest shareholder activist” and “the bane of corporate ineptitude,” has a net worth topping $9 billion.

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