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G&W buys Rail Management's RRs
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Genesee & Wyoming Announces Agreement to Acquire Short Line and Port Railroads from Rail Management Corporation <br />GREENWICH, Conn., May 26, 2005/PR Newswire/-- Genesee & Wyoming Inc. (GWI) (NYSE:GWR) announced today that it has signed an agreement with Rail Management Corporation (RMC) to acquire substantially all of RMC’s rail operations for $243 million in cash and the assumption of $1.7 million of non-interest bearing debt. The acquisition is subject to customary closing conditions and the expiration of the 7-day notice period required by the Surface Transportation Board for GWI to obtain authority to control the railroads owned by RMC. GWI expects to close the acquisition and commence operations on June 1, 2005. <br /> <br />Overview of Acquisition <br />Founded in 1980, RMC, headquartered in Panama City Beach, Florida, is an operator of short line railroads. The business being acquired is composed of fourteen principal rail operations with locations throughout the South and Southeast United States, including Florida, Alabama, Mississippi, Georgia, Arkansas, Texas, North Carolina, Tennessee and Kentucky. There is also one rail property located in Wisconsin. The main operations are composed of: i) five former industrial railroads serving the paper and forest products industry, ii) seven short line railroads, and iii) two port railroads. RMC operates over 928 miles of track, with 88 locomotives and 1,751 freight cars. The railroads handle approximately 170,000 annual carloads, with approximately 50% of its customers being in the paper and forest products industry. <br /> <br />Geographic Fit with GWI <br />The acquired business will be operated as part of GWI’s Jacksonville-based Rail Link subsidiary, under the leadership of Billy C. Eason. The acquisition of the five former industrial railroads complements Rail Link’s current paper and forest products business which includes three railroads formerly owned by Georgia-Pacific Corp. (acquired in 2003) and industrial switching operations at eight paper mills throughout the Southeast. The acquisition of the two port railroad operations ( Galveston, TX; Wilmington, NC ) as well as two ports served by two of the other rail lines ( Panama City, FL; Port St. Joe, FL ) complements Rail Link’s seven existing port operations ( Corpus Christi, TX; Jacksonville, FL; Fernandina, FL; two ports in Savannah, GA; Brunswick, GA; Baton Rouge, LA ). The remaining short lines will be managed along with Rail Link’s existing eleven short line operations. For a map of the acquired businesses and the geographic overlap with Rail Link’s railroads, please go to the following web site www.gwrr.com. <br /> <br />Acquisition Structure <br />GWI will acquire the equity of certain RMC subsidiaries under Section 754 of the Internal Revenue Code and will therefore benefit from the stepped-up tax basis of the assets. The acquired business will also be eligible for tax credits associated with recent U.S. legislation which created a three-year tax credit for track investment by Class II and III railroads. <br /> <br />Financing <br />GWI is financing the $243 million cash purchase price by expanding the size of its senior revolving credit facility from $150 million to $225 million and by completing a private placement of $125 million 10-Year Senior Floating Rate Notes. The Company plans to draw down $118 million under the senior revolving credit facility at an initial borrowing rate of LIBOR plus 1.375%. The initial borrowing rate on the $125 million of Senior Notes will be LIBOR plus 0.85%. GWI expects to enter into a multi-year interest rate swap of approximately $125 million, and expects the blended borrowing rate of the financing associated with this acquisition to be approximately 5.2%. <br /> <br />Following the acquisition, GWI will have approximately $107 million of remaining capacity under its senior revolving credit facility, which will be available for general corporate purposes, including acquisitions. As of March 31, 2005, pro forma for the debt financing, GWI’s total debt to capitalization was approximately 51.1%. <br /> <br />Expected Financial Impact to GWI North America <br />On an annual basis, GWI expects the acquired business to haul approximately 170,000 carloads and to generate approximately $22 million of operating income, including the impact of certain immediate operating efficiencies. GWI expects the acquired business will require annual capital expenditures of approximately $2 million and will have annual depreciation and amortization expense of approximately $8 million. GWI expects the acquisition to be immediately accretive to earnings per share, despite start-up costs during an initial three month transition period. On an annual basis, including the tax impact of the transaction, GWI expects the acquisition to add approximately $22 million of additional free cash flow defined as Net Cash Provided by Operating Activities of approximately $24 million less Net Cash Used in Investing Activities of approximately $2 million) to its North American operations. See the attached description and discussion of Free Cash Flow. <br /> <br />Mortimer B. Fuller III, Chairman and CEO of GWI commented, “The timing and fit of the Rail Management acquisition is exceptional. First, the rail properties are an excellent geographic fit with our Rail Link Region thereby enabling us to reduce costs and increase efficiency. Second, our ability to write-up the tax basis of the acquired entities helps to support a substantial increase in our free cash flow. Third, we are purchasing the assets at a time when we are able to benefit from highly favorable debt market conditions. Fourth, while we are taking on a modest increase in our debt profile, the cash flow from the combined businesses will allow GWI to de-lever rapidly. Finally, the business is well run, management is strong, the employees are dedicated, the markets served are growing and the assets are in good condition.” <br /> <br />GWI is a leading operator of short line and regional freight railroads in the United States, Canada, Mexico, Australia and Bolivia. The Company operates over 8,200 miles of owned and leased track and more than 3,000 additional miles under track access arrangements. <br /> <br />Forward Looking Statements <br />This press release contains forward-looking statements regarding future events and the future performance of GWI that involve risks and uncertainties that could cause actual results to differ materially from its current expectations including, but not limited to, economic conditions, customer demand, increased competition in relevant markets, and others. GWI refers you to the documents that it files from time to time with the Securities and Exchange Commission, such as GWI's Forms 10-Q and 10-K which contain additional important factors that could cause its actual results to differ from its current expectations and from the forward-looking statements contained in this press release. <br /> <br />Free Cash Flow Description and Discussion <br />Management views Free Cash Flow as an important financial measure of how well GWI is managing its assets. Subject to the limitations discussed below, Free Cash Flow is a useful indicator of cash flow that may be available for discretionary use by GWI. Free Cash Flow is defined as Net Cash Provided by Operating Activities less Net Cash Used in Investing Activities, excluding the Cost of Acquisitions. Key limitations of the Free Cash Flow measure include the assumptions that GWI will be able to refinance its existing debt when it matures and meet other cash flow obligations from financing activities, such as required dividend payments and principal payments on debt. Free Cash Flow is not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of cash flow determined in accordance with Generally Accepted Accounting Principles. <br /> <br />SOURCE Genesee & Wyoming Inc. <br />05/26/05 <br /> <br />CONTACT: John C. Hellmann, President, Genesee & Wyoming Inc., 203-629-3722 <br />Web site: http://www.gwrr.com <br />
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