Brookfield buys rail operator Genesee & Wyoming in $8.4 billion deal

Brookfield buys rail operator Genesee & Wyoming in $8.4 billion deal

The buy expands Brookfield's global portfolio of rail companies with a 120-line network spanning North America, Europe and Australia

Genesee & Wyoming Inc. switching locomotives pull a grain train at the Port of Galveston in Galveston, Texas, U.S.Luke Sharett/Bloomberg

An affiliate of Brookfield Asset Management Inc. agreed to buy Genesee & Wyoming Inc. for about US$6.3 billion, expanding its global portfolio of rail companies with a 120-line network spanning North America, Europe and Australia.

Brookfield will pay US$112 a share in cash, a 40 per cent premium from G&W’s close on March 8, the last day of trading before Bloomberg News reported that the railroad operator was exploring a possible sale. The stock rose 8.5 per cent to US$108.46, an all-time high, at 9:54 a.m. Monday in New York.

The deal is valued at US$8.4 billion including debt, the companies said in a statement.

Singapore sovereign wealth fund GIC Pte will join Brookfield and other partners in a consortium to manage the rail lines that come with 3,000 customers and a resilient cash flow. Activist investor Blue Harbour Group LP also has built a 4 per cent stake in G&W, which trades under the ticker symbol GRW.

“The transaction announced today unlocks the significant shareholder value that GWR’s management team has built over many years, both through acquisitions and operational execution,” Blue Harbour managing director Robb A. LeMasters said in a statement. Blue Harbor began investing in G&W last year, when the stock traded at about US$75 a share, he said.

The railroad operator controls small connecting lines that don’t compete directly with the largest North American railroads, such as Union Pacific Corp., CSX Corp. and Canadian National Railway Co. It has operations in Australia, the U.K. and continental Europe, as well.

G&W had climbed 35 per cent this year through Friday, compared with a 17 per cent gain for the Standard and Poor’s Midcap 400 Index. The stock is valued at 23 times estimated earnings, compared with the industry gauge, which is trading at 16.6 times.

G&W got its start in the 19th century as a 14-mile rail spur built to serve a salt mine in upstate New York. After the U.S. railroad industry was deregulated in 1980s, the company began snapping up short lines across the country and expanded into Australia in the late 1990s. G&W now owns or leases 120 freight railroads worldwide and has 8,000 employees.

G&W gets about 85 per cent of its operating income from its North American operations, which control an unlinked collection of lines that often connect customers to major railroads’ larger network. The company had US$2.35 billion of sales in 2018, a 30-fold increase from when it first sold shares to the public in 1996.

“This is a rare opportunity to acquire a large-scale transport infrastructure business in North America,” said Sam Pollock, chief executive of 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.”

The transaction is expected to close by early 2020. Credit Suisse Group AG, Wells Fargo & Co., Citigroup Inc. and RBC Capital Markets are providing US$3.15 billion of financing.

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