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Today, Genesee & Wyoming Inc. (GWI) and RailAmerica Inc. announced they entered into an agreement through which GWI will acquire RailAmerica for $27.50 per share in cash.

The transaction, which is subject to Surface Transportation Board (STB) approval, would combine North America’s two largest short-line holding companies, which control 108 railroads. RailAmerica owns and operates 45 regionals and short lines in the United States and Canada; GWI owns and operates 63 regionals and short lines in the United States and Canada.

The acquisition will strengthen GWI’s ability to serve its industrial customers and Class I partners, yield “significant synergies,” provide “strong leverage” to the eventual recovery of the U.S. economy and create a “powerful platform” for future industrial development along railroads in 37 states, GWI officials said in a prepared statement.

“The acquisition of RailAmerica by GWI is a straightforward combination of two organizations with overlapping holding company structures and complementary railroad geographies,” said GWI President and Chief Executive Officer Jack Hellmann. “For our current customers, the combination will only strengthen our ability to offer what has long been the lifeblood of the short line industry: local, flexible, responsive operations with outstanding customer service. For our Class I partners, our commitment to service excellence, the intensity of our local marketing and commercial development, as well as our industry-leading safety record should be powerful long-term drivers of future rail traffic across all of our Class I connections.”

For RailAmerica, the sale validates the “transformational improvements that our management team and employees have made since the acquisition of the business in 2007 by investment funds managed by affiliates of Fortress Investment Group L.L.C.,” said RailAmercia President and CEO John Giles.

“From this strong base of operations and having unlocked significant shareholder value, a combination with Genesee & Wyoming is the logical next step in creating a combined organization that will be a powerful driver of North American rail traffic for decades to come,” he said.
 
GWI expects to fund the transaction and the simultaneous refinancing of its existing debt with about $2 billion of new debt and $800 million of equity or equity-linked securities. The company expects to close the transaction into a voting trust as early as the third quarter while it awaits formal STB approval. The board’s approval could be issued as early as the fourth quarter but could be delayed until third-quarter 2013, GWI officials said.