Morningstar | Brookfield Infrastructure Partners and GIC Consortium Strikes Deal to Buy Genesee & Wyoming. See Updated Analyst Note from 01 Jul 2019
Affiliates of Brookfield Infrastructure Partners and GIC struck an agreement to acquire short-line railroad specialist Genesee & Wyoming for $112 per share in cash; the transaction will make G&W a privately held entity. G&W’s board of directors unanimously approved the offer. In short, we are raising our fair value estimate to $112 per share to reflect Brookfield and GIC’s offer for all outstanding shares--our previous $74 fair value estimate reflects our take on G&W’s stand-alone prospects. The deal is slated to close by year-end or early 2020. We note that Brookfield and GIC are long-term minded global infrastructure investment firms, and their portfolio companies include rail and other transportation infrastructure operations, among other asset classes.The offer implies a total enterprise value of $8.4 billion, likely implying an EV/EBITDA multiple near 11.7 times 2019 Street consensus and is 12% above G&W’s $100 closing price on June 28, prior to the firm’s official announcement. That said, rumors have already been circulating about a potential deal--initially mentioned in a March 11 Bloomberg article--and this pushed up the stock price in recent months. Along those lines, the offer price is 39.5% above the stock price on March 8, just prior to initial media conjecture. The deal price is also well above our previous $74 fair value estimate, likely reflecting a control premium and material anticipated synergies.
Overall, given the offer price, we consider the transaction highly favorable for G&W’s shareholders, and we expect approval. The transaction is also subject to regulatory approval, including affirmation from the Committee on Foreign Investment in the United States and the U.S. Surface Transportation Board. While we don’t expect an issue, if the deal fails to receive approval, our fair value estimate would likely revert to $74 per share (all else equal).
Genesee & Wyoming owns or leases freight railroads worldwide. The company has three segments: North American Operations, which includes several regions that serve U.S. states and Canadian provinces and includes short line and regional freight railroads; Australian Operations, which serves New South Wales, the Northern Territory and South Australia and operates the Tarcoola-to-Darwin rail line; and U.K./European Operations, which is led by Freightliner Group Limited, a rail maritime intermodal operator and rail freight provider, as well as regional rail services in Continental Europe.
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