US freight retail operator Genesee & Wyoming to acquire RailAmerica

US freight rail operator Genesee & Wyoming (NYSE:GWR), or GWI, has sealed an agreement to buy sector player RailAmerica (NYSE:RA) in a deal that will result in the creation of one of the biggest short line and regional rail operators in the US.

GWI is offering to pay USD27.50 (EUR22.7) per share in cash for the Jacksonville, Florida-based company, or a premium of over 10.6% on RailAmerica’s closing price on Friday and 27.6% above its closing on 21 May, the last trading day before the target company said it was looking at strategic options for its future.

The buyer plans to finance the deal and simultaneously refinance existing debt by raising some USD2bn in new debt and USD800m of equity or equity-linked securities. GWI has obtained USD2.3bn of committed debt financing from BofA Merrill Lynch and USD800m of committed equity financing from US asset manager The Caryle Group (NASDAQ:CG).

The deal is currently pending clearance by the United States Surface Transportation Board. The acquisition will add over 10% to GWI’s earnings per share in 2013 if the buyer gets approval to fully consolidate RailAmerica’s railroads by December 2012.

Once the transaction is completed, the enlarged business will have a 4,300-strong headcount, 111 railroads, 15,100 miles (24,300 kilometres) of track, 1.8m carloads and 1,000 locomotives. With the addition fo RailAmerica, GWI also expects to see its annual revenue surge by almost two-thirds to around USD1.4bn.

GWI received advice from BofA Merrill Lynch, Simpson Thacher & Bartlett LLP, Steptoe & Johnson LLP and Thorpe Reed & Armstrong LLP in relation to the deal. RailAmerica was counselled by Deutsche Bank Securities, which also provided a fairness opinion to its shareholders, as well as by Skadden, Arps, Slate, Meagher & Flom LLP and Sidley & Austin.