Brookfield, partners to acquire G&W for $8.4B

Written by Andrew Corselli, Managing Editor
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Brookfield Infrastructure Partners LP and Genesee & Wyoming, Inc. (G&W) have come to terms on an agreement for the latter to be acquired via an $8.4 billion transaction—including outstanding debt.

According to the deal, which has been in the works for a couple of months, “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,” G&W said in a press release.

The transaction—expected to close by year’s end or early 2020—would make G&W a privately held company and is subject to customary closing conditions, such as approval by G&W stockholders holding 66 2/3% of the outstanding common stock, required regulatory approvals that include approval by the Committee on Foreign Investment in the U.S., the U.S. Surface Transportation Board, and certain competition and antitrust approvals.

Due to the pending deal, G&W said it will cease reporting monthly carloads and will not hold a conference call for its 2Q19 financial results, and it expects to file its 2Q19 10-Q by close of business on August 9, 2019.

Brookfield’s investment will be approximately $500 million of equity, G&W noted, and “the remainder of the business will be owned by Brookfield Infrastructure’s institutional partners and GIC [a global long-term investor based in Singapore]. Brookfield Infrastructure’s investment will be funded from existing liquidity, which totaled approximately $1.9 billion at June 30, 2019.”

G&W owns or leases 120 freight railroads in eight operating regions with approximately 8,000 employees serving 3,000 customers. Its six North American regions serve 41 U.S. states and four Canadian provinces, and include 114 short line and regional freight railroads with more than 13,000 track miles; its Australia Region includes New South Wales, the Northern Territory and South Australia, and serves the 1,400-mile Tarcoola-to-Darwin line; and the U.K./Europe region includes the U.K.’s “largest rail maritime intermodal operator and second-largest freight rail provider, as well as regional rail services in Continental Europe.”

G&W’s Rapid City, Pierre & Eastern is Railway Age’s 2019 Regional Railroad of the Year. Chairman, President and CEO Jack Hellmann was Railway Age’s 2018 Railroader of the Year.

“We believe this transaction is an excellent outcome for all G&W stakeholders,” Hellmann said in a press release. “For our current stockholders, the sale price realizes significant value and represents a 39.5% premium to our March 8 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,” Hellmann continued. “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.”

“This is a rare opportunity to acquire a large-scale transport infrastructure business in North America,” said Sam Pollock, CEO, Brookfield Infrastructure. “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.”

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

“G&W’s announcement that it will be bought by Brookfield Infrastructure, GIC, and Brookfield Infrastructure’s institutional partners is an 11.7x multiple of the Street’s 2019 EBITDA estimate and a 10.8x multiple of the Street’s 2020 EBITDA estimate,” notes Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “We believe that regulatory approval will not be an issue. We also believe that G&W was likely conducting somewhat of a bidding process since the initial media reports in March, making a competing bid at this time unlikely. We are raising our price target to $112 as we adjust our 2019 multiple to 25.5x and maintain our $4.40 EPS estimate, to reflect our view that we don’t believe there will be any regulatory issues.”

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