I'm thinking of having "just a little bit cheaper" tattooed somewhere on my body. For months, I've been stalking Genesee & Wyoming (NYSE:GWR) as a possible addition to my portfolio, but I've consistently held out in hopes of getting it "just a little bit cheaper." So with the stock up by more than 12% in trading on Thursday, I'm not looking forward to explaining to my wife why I never pulled the trigger on that "small railroad you always write about and seem to like so much."
The fuel for this latest rise is the announcement that the company has completed yet another railroad acquisition. Genesee & Wyoming will be taking over all of Rail Management Corporation's rail operations for $243 million in cash and the assumption of $1.7 million of no-interest debt.
Genesee & Wyoming will be getting 14 rail operations located primarily in the southern and southeastern United States. Five of the lines are industrial railroads serving the paper/forestry industry, seven are short-line railroads, and the other two are port railroads. On an annual basis, these railroads carry about 170,000 carloads, with about half of the total business devoted to paper and forestry.
While Genesee & Wyoming is paying cash, it is taking on debt to do so. About $118 million will come from an expansion of the credit facility, and the other $125 million will come from the private placement of senior floating-rate notes. Once these transactions are complete, management expects to enter into a multi-year swap and achieve a blended interest rate of about 5.2%.
Like practically all of Genesee & Wyoming's transactions, this one will be accretive -- chipping in about $22 million of operating income and a like amount of incremental free cash flow.
This deal is a great example of why I like Genesee & Wyoming -- the company's balance sheet gives it flexibility to do these deals on good terms, and management seems to have a knack for finding accretive acquisitions that nicely augment the existing business and infrastructure. What's more, unlike behemoths Union Pacific (NYSE:UNP), BurlingtonNorthern (NYSE:BNI), or CSX Corp (NYSE:CSX), Genesee & Wyoming can still do small deals that make a big impact.
Sigh....
Now I'm going to contemplate the error of my ways for not buying up these shares a couple of weeks ago. I still maintain my basic philosophy that it's better to buy cheap than dear, but sometimes you can be too cheap for your own good.
All aboard for past Foolish Takes on railroads:
- Tracking the Numbers at Genesee & Wyoming
- CP's Nice Ride on the Rails
- Still Looney for the Rails
- Genesee Rides Smooth Rails
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
