Genesee & Wyoming Inc. (G&W) has agreed to acquire Providence and Worcester Railroad Company (P&W) for $25.00 per share, or approximately $126 million. Subject to satisfaction of customary closing conditions, the acquisition is expected to close following the receipt of P&W shareholder approval in the fourth quarter of 2016.
Based in Worcester, Mass., and operating in Rhode Island, Massachusetts, Connecticut and New York, P&W is contiguous with G&W’s New England Central Railroad (NECR) and Connecticut Southern Railroad (CSO). Rail service is provided by approximately 140 P&W employees with 32 locomotives across 163 miles of owned track and over approximately 350 miles under track access agreements, including exclusive freight access over Amtrak’s Northeast Corridor between New Haven, Conn., and Providence, R.I., and trackage rights over Metro-North Commuter Railroad, Amtrak and CSX Corp. between New Haven, Conn., and Queens, N.Y.
P&W interchanges with G&W’s NECR and CSO railroads, as well as with CSX, Norfolk Southern, Pan Am Railways, Pan Am Southern, the Housatonic Railroad and the New York and Atlantic Railroad, and also connects to Canadian National and Canadian Pacific via NECR.
P&W serves a diverse mix of customers in southeastern New England, handling approximately 43,000 carloads and intermodal units annually. In addition, P&W provides rail service to three ports (Providence, Davisville and New Haven) and to a U.S. Customs bonded intermodal terminal in Worcester, Mass., that receives inbound intermodal containers for distribution in New England. P&W also owns approximately 45 acres of undeveloped waterfront land in East Providence, R.I., that was initially created as a deep water, rail served port through a $12 million investment. G&W expects to sell this undeveloped land.
Upon approval by the Surface Transportation Board (STB), P&W would be managed as part of G&W’s Northeast Region, led by Senior Vice President Dave Ebbrecht. The addition of P&W to G&W’s existing presence in the region substantially enhances G&W’s ability to serve customers and Class I partners in New England, which is a highly competitive rail market with a premium placed on timely, efficient and safe rail service. The acquisition is anticipated to unlock significant cost savings through overhead, operational and long-term network efficiencies as well as to generate significant new commercial opportunities.
Jack Hellmann, president and chief executive officer of G&W, commented: “The acquisition of P&W is an excellent strategic fit with G&W’s contiguous railroads, the New England Central and the Connecticut Southern. Following anticipated STB approval of the acquisition, our connectivity with the P&W enables us to realize substantial immediate cost savings, to share and optimize the utilization of equipment and other assets, and to unlock significant new customer opportunities across sister G&W railroads as well as connecting partners at two Canadian Class I Railroads, two U.S. Class I Railroads and two regional railroads. Our acquisition of the P&W will ultimately enhance the efficiency and customer service of rail in New England.”
“We are excited to welcome P&W’s employees to G&W as we work together to provide safe, reliable and efficient rail service to our customers for the long term. We also look forward to working with our Class I partners, Amtrak and Metro-North Commuter Railroad to ensure a smooth transition of services and build upon the success of P&W’s current operations.“
In the first year of operation, G&W anticipates P&W will generate approximately $35 million of revenue and $12 million of EBITDA, including realization of $8 million of immediate overhead and operational cost savings. In the medium term, G&W anticipates additional operational efficiencies and commercial opportunities will generate a further $5 million of EBITDA that will be realized over the following two to three years.
G&W expects P&W will require approximately $3 million of annual capital expenditures and have depreciation and amortization expense of approximately $3 million. G&W expects annual diluted EPS accretion from the acquisition of approximately 2 percent, subject to finalization of acquisition accounting under U.S. GAAP.
G&W expects to fund the approximately $126 million acquisition through its revolving credit facility under which it had available capacity of $542 million as of June 30, 2016. As previously noted, G&W expects to sell the land in East Providence, R.I., which was developed through a $12 million investment.
