Connecticut-based railroad operator Genesee & Wyoming Inc. (G&W) (NYSE: GWR) said its subsidiary Genesee & Wyoming Australia (GWA) agreed to acquire Glencore Rail (GRail) from Glencore plc (LSE: GLEN), one of the world’s largest commodity trading and mining companies, for A$1.14 billion (US$874 million).
G&W will concurrently issue a 49% equity stake in G&W Australia to Macquarie Infrastructure and Real Assets (MIRA), creating a partnership (51% G&W and 49% MIRA) with an enterprise value of A$2 billion.
MIRA is part of the asset management arm of global financial services institution Macquarie Group. MIRA has $US104 billion in assets under management.
Peter Freyberg, head of Glencore’s Global Coal Assets, said, “We established GRail in 2010 and have steadily grown it to become the third largest coal haulage business in the country. It has played a very important role in reducing costs and improving the overall efficiency of Australia’s largest coal chain in the Hunter Valley.”
At closing, GWA will also enter into a 20-year rail haulage contract with Glencore Coal Pty Ltd. to service the majority of Glencore’s coal haulage requirements in the Hunter Valley.
“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” said Jack Hellmann, president and CEO of G&W.
G&W’s Freightliner Australia subsidiary, acquired by G&W in March 2015, has been the rail operator of GRail since inception and presently provides haulage and logistics services for 40 million tonnes per year of steam coal that is among the lowest cost and highest quality coal in the world. These services will continue following the GRail deal.
“Through the acquisition and 49% new equity issued to MIRA, we are effectively doubling the size of GWA and retaining 51% 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,” Hellmann added.
Frank Kwok, Asia-Pacific co-head of MIRA, said, “We are pleased to be partnering with G&W, a leading global rail operator in their Australian business.”
Genesee & Wyoming Australia (GWA) operates nearly 5,000 km of track in South Australia and the Northern Territory, including the 2,200-km Tarcoola-to-Darwin railway, and has approximately 600 employees, 90 locomotives and 1,100 wagons.
Genesee & Wyoming owns or leases 121 freight railroads worldwide that are organized in 10 operating regions with approximately 7,200 employees and more than 2,800 customers.
The sale of the GRail business forms another significant part of Glencore’s debt reduction program. In April, Canada Pension Plan Investment Board (CPPIB) agreed to acquire a 40% equity interest in Glencore’s (LSE: GLEN) unit Glencore Agri, for $2.5 billion, as previously reported by ExitHub.
Glencore was founded in 1974 and is headquartered in Baar, Switzerland. The company was formerly known as Glencore Xstrata plc and changed its name to Glencore plc in 2014.
The GRail deal is expected to close on December 1, 2016, subject to Australian Foreign Investment Review Board approval.
Bank of America Merrill Lynch served as financial advisor to G&W. Allens served as legal advisor on the GRail acquisition and formation of the GWA partnership, and King & Wood Mallesons served as legal advisor to G&W on the Australian debt financing.
Macquarie Capital served as financial advisor to MIRA. and Norton Rose Fulbright served as legal advisor.
Photo: Ivan Glasenberg, CEO of Glencore.