G&W Australia acquires Glencore Rail for $856m

Concurrent with the deal for Glencore Rail, the Australian subsidiary of short line and regional rail operator Genesee & Wyoming has issued a 49 percent equity stake to funds managed by Macquarie Infrastructure and Real Assets, the company said.    Genesee & Wyoming Australia (GWA) has agreed to purchase Glencore Rail for $1.14 billion Australian (U.S. $856 million), the company said in a statement.
   As part of the deal, the Australian subsidiary of short line and regional rail operator Genesee & Wyoming (G&W) has issued a 49 percent equity stake to funds managed by Macquarie Infrastructure and Real Assets (MIRA).
   With the acquisition of GRail, the partnership between GWA (51 percent) and MIRA (49 percent) will have enterprise value of A$2 billion, according to GWA.
   G&W said it expects the transaction to have no effect on earnings (EPS) and be “modestly” free cash flow accretive upon closing. In the medium term, however, the company expects significant EPS and free cash flow accretion from anticipated growth under the terms of the rail haulage contract.
   The incremental financial impact to G&W’s consolidated financial results is expected to include $76 million in revenues, $44 million in earnings before interest and taxes (EBIT), $32 million in depreciation and amortization, $30 million in interest expenses, $9 million to $10 million in net income attributable to non-controlling interest for MIRA’s 49 percent stake, and $3.8 million in capital expenditures, the company said.
   Although still subject to approval by the Australian Foreign Investment Review Board, the transaction is expected to close Dec. 1, 2016.
   “The acquisition of Glencore Rail solidifies GWA’s position as the most efficient rail operator with the highest service quality in the Australian rail market,” Jack Hellmann, president and chief executive officer of parent company G&W, said of the deal. “Through the acquisition and 49 percent new equity issued to MIRA, we are effectively doubling the size of GWA and retaining 51 percent of a business with stronger long-term free cash flow and a significant portion of GWA’s rail shipments under long-term, take-or-pay contracts.”
   “GWA is a strong business that owns and operates essential rail infrastructure supporting industries primarily operating in regional Australia,” added Frank Kwok, Asia-Pacific co-head of MIRA. “For MIRA, this agreement expands our infrastructure footprint in Australia and allows us to contribute our international experience investing and managing transport and transport services assets.”
   Bank of America Merrill Lynch served as financial advisor to G&W, while Allens served as legal advisor on the GRail acquisition and formation of the GWA-MIRA partnership, and King & Wood Mallesons served as legal advisor on the Australian debt financing.
   Macquarie Capital served as financial advisor to MIRA, and Norton Rose Fulbright served as legal advisor.