On June 8, Genesee & Wyoming Inc. (GWI) (NYSE:GWR) announced that it had signed an agreement to acquire the assets of FreightLink Pty Ltd, Asia Pacific Transport Pty Ltd, and related corporate entities (together, FreightLink) for A$334 million (US$277.2 million at current exchange rates), plus the assumption of debt with a carrying value of A$1.7 million (US$1.4 million). GWI expects to incur other transaction-related expenses of A$23 million (US$19.1 million), principally related to the payment of stamp duty (an Australian asset transfer tax).
FreightLink owns and operates the 1,400-mile Tarcoola to Darwin railroad, linking the Port of Darwin to the Australian interstate rail network in South Australia. The rail line is located on land leased to FreightLink by the AustralAsia Railway Corporation under a concession agreement that ends in 2054.
FreightLink began operations in 2004, following the construction of the Alice Springs to Darwin portion of the rail line. It has been in receivership since November 2008.
FreightLink is both a provider of rail haulage to customers on its railroad ("above rail services") and a track owner, charging access fees to any rail operators that run on its track subject to a certified state-based access regime, under Australia's National Access Regime ("below rail services"). Its above-rail business currently handles approximately 60,000 carloads per year using 23 locomotives and 430 railcars. For the 12 months ended December 31, 2009, FreightLink's revenues were composed of general freight (62%), bulk minerals (33%), and other revenues (5%). General freight primarily comprises long-haul, domestic intermodal traffic to the Northern Territory. FreightLink's bulk minerals traffic primarily serves customers in the mining industry who ship iron ore, copper, and manganese.
"The acquisition of FreightLink is a natural extension of GWI's existing rail business in South Australia," said John C. Hellmann, CEO of GWI. "From an operating perspective, the acquisition is a straight forward integration, as our people are already responsible for the current train service. From a commercial perspective, we look forward to working with FreightLink's intermodal and mining customers to facilitate their growth, a partnership that has been limited until now due to the debt burden on the business. From a strategic perspective, we expect GWI's Australian operations to become an A$275 million (US$228 million) revenue company with the operating expertise, safety record and financial strength to serve new customers in central Australia and beyond."
Hellman considers the railroad, despite its receivership, to be a high-quality, important transportation link, and he anticipates growth particularly in the mining industry that FreightLink serves.
FreightLink will be operated as part of GWI's Australia Region, Genesee & Wyoming Australia (GWA), which is based in Adelaide, South Australia, where FreightLink is also headquartered. GWA has managed FreightLink's above-rail services since its inception in 2004 and currently provides the majority of its crews, manages its train operations, and also leases locomotives and rail cars to FreightLink. GWI anticipates significant cost and capital efficiencies from combining FreightLink's operations with GWA.
The acquisition of FreightLink is contingent upon customary closing conditions, including the receipt of certain governmental approvals. GWI expects to close the acquisition and to commence operations in the fourth quarter of 2010.