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Genesee & Wyoming Pay $1.39B For RailAmerica

Mon, 07/23/2012 - 10:02am

(AP) — Genesee & Wyoming said Monday that it will buy RailAmerica for about $1.39 billion in a deal that combines the two largest short-line and regional rail operators in North America. The combined company will operate 108 railroads in the U.S. and abroad. The deal will diversify what the railroads carry, offering protection from prolonged weakness in certain shipments like coal, and make it less dependent on certain big customers. The combination will also allow the two companies to streamline their operations to save money.

Besides the U.S. and Canada, Genesee & Wyoming also operates railroads in Australia, the Netherlands and Belgium. Shares of RailAmerica jumped more than nine percent in morning trading. Greenwich, Connecticut-based Genesee & Wyoming will pay $27.50 in cash for each share of RailAmerica Inc., which is based in Jacksonville, Florida. The price represents a premium of nearly 11 percent over RailAmerica's closing price of $24.81 on Friday.

RailAmerica has been shopping around for a possible buyer since May, when it announced it was considering strategic alternatives. The deal price announced Monday represented a premium of more than 27 percent from RailAmerica's closing price of $21.55 before it made that announcement. The Surface Transportation Board, the agency that regulates U.S. railroads, still must approve the deal. The companies say that could happen by the fourth quarter.

Genesee & Wyoming expects to close the deal via a voting trust as early as the third quarter and then fully integrate RailAmerica once it receives the regulatory approval. It expects to pay for the deal and refinance existing debt with about $2 billion in new debt and $800 million in equity or equity-linked securities.

When the deal closes, it will expand Genesee's network to 37 U.S. states from 24. The U.S. business will make up about 70 percent of its revenue. The way the company gets its revenue will also be much more diversified. Genesee said that if the two had been combined last year, no single customer would have represented more than three percent of its revenue and no single commodity would have been more than 16 percent.

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