Genesee & Wyoming Exploring Strategic Options

Genesee & Wyoming Inc. (NYSE: GWR), the global rail short line holding company that owns or maintains an interest in 120 railroads throughout six countries is investigating options to strategically sell all or portions of its worldwide operation.

During GWR’s Q1-2019 earnings report on April 30th, the GWR announced that while rail volumes were down by 1.2% during the period (weather related), they anticipate a 1-2% increase for the remainder of the year. A strong North American economy and implemented cost reductions should provide favorable financial results for the GWR.

All this positive news is possibly one reason why the GWR is seeking a sale in whole or in part. GWR has retained a financial advisor to engage in discussions with potential interested parties. Parties mentioned include Brookfield Asset Management, Backstone Group LP, Stonepeak Infrastructure Partners, EQT Partners and others that were not disclosed.

Brookfield Asset Management
Toronto, Canada based alternative asset management company, with $300 billion of assets that focuses on real estate, renewable power, infrastructure and private equity.

Blackstone Group LP
A New York City based multinational private equity, alternative asset management and financial services firm. Blackstone is the largest alternative investment firm in the world.

Stonepeak Infrastructure Partners
A New York based private equity firm that invests in power, renewable energy, utilities, transportation and communications.

EQT Partners
A Swedish based private equity group, with a network of industrial investor. EQT invests primarily in private equity, mid-market, infrastructure and credit in Europe, North America and China. Investment focus is industrials, technology, media and health care.

Following the announcement, GWR’s stock price jumped from $86.07 per share on May 22nd to a closing price of $94.95 the following day. The company has an estimated market valuation of $6.2 billion. A targeted sales price equates to $110 per share (56.5 million shares outstanding).

The motivation behind this move is still unclear. GWR may be looking to sell off various operations that do not match well with their strategic objectives, while retaining those that do (ex- North American short line operations). The transition of North American Class I railroads to Precision Scheduled Railroading (PSR) will continue to lessen the Class I’s focus on performing origin and destination switching. As this trend continues, short line rail operators such as GWR will greatly benefit. Cash generated from a partial sale can be readily used to absorb new switching opportunities in North America.