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Several law firms are launching investigations into Genesee and Wyoming’s (NYSE:GWR) acquisition of RailAmerica (NYSE:RA). The investigation seeks to resolve whether RailAmerica’s board appropriately searched for a deal that would provide the best value for its shareholders before agreeing to terms with GWI. The current deal with GWI would pay shareholders $27.50 per share, an 11% increase from last Friday’s closing price. Some analysts believe the true value may be as high as $28.00 per share.
On the morning of 23 July 2012, Genesee and Wyoming Inc (NYSE:GWR) announced the acquisition of RailAmerica Inc (NYSE:RA). While significantly smaller than Berkshire Hathaway’s acquisition of Burlington Northern Sante Fe Railway last year, this purchase nearly doubles the size of GWI. It also represents the combination of North America’s two largest short line and regional rail operators.
In acquiring RailAmerica, Genesee and Wyoming takes control of 7,500 miles of track, almost entirely in the United States. Also, this deal will expand GWI’s operations from 24 states to 37 states. The railway company now operates almost 13,000 miles in North America, accounting for 70% of expected revenue.
At $23.50 per share, the total price of the acquisition is $1.39 billion. Genesee and Wyoming Inc will restructure its current debt as well as add an additional $2 billion in debt to finance the deal. The company has already agreed to a deal with Bank of America/Merrill Lynch to receive $2.3 billion in debt financing. Additionally, the Carlyle Group has pledged $800 million in equity financing.
In the first hours of trading since the announcement, RailAmerica’s share price has increased 9.73% to $27.23 per share.
Since railway companies are continually struggling with the decline in coal shipping, this acquisition allows GWI to expand its operations and seek other opportunities to generate revenue through serving new markets and transporting new forms of cargo.
