* To fund acquisition via cash and debt
* To incur charge of about A$23 mln
* Genesee shares rise 13 percent (Adds details, analyst comments, share movement)
June 9 (Reuters) - U.S. railroad operator Genesee & Wyoming Inc (GWR.N) agreed to buy Australia’s FreightLink for A$334 million (US$277.2 million) to expand its operations in the mineral-rich country, sending its shares up 13 percent.
FreightLink, which has been in receivership since November 2008, is the owner and operator of the Adelaide-to-Darwin railway, which mainly hauls commodities for mining companies.
Reuters reported earlier this month that bids for FreightLink have come in below its outstanding debt levels, and that Genesee is seen as a frontrunner for the company. [ID:nSGE65309M]
The railway, originally valued at about A$1.2 billion, went into administration after some debt holders refused to agree to an earlier deal to sell the company.
Genesee, which will assume about A$1.7 million of FreightLink’s debt, has been managing FreighLink’s rails since its inception in 2004.
Genesee expects FreightLink to add about A$145 million (US$120 million) of revenue and A$35 million (US$29 million) of operating income in the first 12 months of ownership, it said in a statement late Tuesday.
Wells Fargo analyst Anthony Gallo said the acquisition can add 25 cents to 30 cents to earnings per share in 2011, while Sidoti & Co analyst Robert Dunn sees addition of about 28 cents per share.
“We believe the transaction furthers Genesee’s attractive position in front of long-term secular growth opportunities, including the export of Australian natural resources to Asian economies,” analyst Gallo wrote in a note.
Sidoti’s Dunn said considering Genesee was managing FreightLink’s services from the beginning, this deal looks like a good fit from an integration perspective.
Acquisitions have been a key growth strategy for smaller U.S. railroads such as Genesee and RailAmerica (RA.N) operating in a highly fragmented market.
Genesee, a short-line freight railroad operator in the United States, Canada, Australia and the Netherlands, has completed 34 acquisitions since 1985, according to its annual report filed with the U.S. Securities and Exchange Commission.
Genesee, which expects to incur a charge of A$23 million on the buy, plans to fund the deal though cash on hand and borrowings from its credit facility.
The company said it may issue a new tranche of Australian debt if it is able to obtain commercially acceptable terms.
Separately, Genesee said traffic increased 19 percent to 71,659 carloads in May. Traffic in the second quarter through May was up 17.5 percent.
Shares of the company were up 13 percent at $36.92 Wednesday on the New York Stock Exchange. They touched a high of $36.96 earlier in the session. (Reporting by A.Ananthalakshmi and Fareha Khan in Bangalore; Editing by Don Sebastian)