RailAmerica set for IPO next week
NEW YORK — RailAmerica Inc. is set to go public next week, potentially giving private-equity funds a payday, while the short-line railroad operator pays down debt and grows its business.
The Jacksonville, Florida-based company expects to sell about 21 million shares in the offering for $16 to $18 apiece. Half of those shares will be sold by the company, while the other half will be sold by private equity funds managed by a unit of Fortress Investment Group LLC — the firm that took the company private in 2007. Those funds will own nearly 58 percent of the company’s stock after the offering.
The stock is expected to begin trading on Tuesday on the New York Stock Exchange under the symbol “RA.”
The recent market rally in equities and a sense that investors’ are again ready for IPOs is prompting a number of companies to go public. Investors see transportation companies as an opportunity, because they tend to lead the broader economy out of recession. Most analysts believe that falling transportation demand has bottomed and may soon show signs of an uptick.
“This one should really ride the crest of the competition,” said John Fitzgibbon of IPOScoop.com.
Fitzgibbon added that the stock should also attract investor attention because it will start trading at the beginning of a sparse week for IPOs.
RailAmerica earned $16.5 million last year, with revenue of $508.5 million. In the first six months of this year, the company reported net income of $19.2 million with sales of $206.5 million.
The company’s 40 affiliated railroads operate in 27 states and 3 Canadian provinces with about 7,500 miles of track. They transported over one million carloads of freight for around 1,800 customers last year, hauling a variety of products; including farm equipment, food, lumber, paper, metals, chemicals, plastics and coal through relationships with other bigger Class I railroads.
Fortress Investment Group’s Wesley R. Edens is chairman. John Giles is president and CEO.
The North American short line railroad industry is highly fragmented, with about 523 short lines operating 28,891 miles of track, according to the latest statistics available from the Association of American Railroads, the industry’s main trade association. That compares with just seven Class I rails running 94,313 track miles. RailAmerica says it is the largest short line in North America by miles of track.
RailAmerica expects net proceeds from the offering of about $163 million. The proceeds will be $25 million higher if underwriters use all of an overallotment option. The company will not receive any proceeds from shareholders’ stock sales.
RailAmerica will use proceeds from the offering to fund working capital and other corporate activities — including repaying or refinancing debt, investments or acquisitions. In a filing with the Securities and Exchange Commission, the company said it believes opportunities to buy assets at good prices are increasing because of tighter credit markets and declining transportation volumes, which give other companies more incentive to sell. It also leaves a limited number of buyers to snatch up asset deals, the company said.
Underwriters include JPMorgan, Citi, Deutsche Bank Securities, Morgan Stanley, Wells Fargo Securities, Dahlman Rose & Co., Lazard Capital Markets, Stifel Nicolaus and Williams Trading LLC.
The company had about 43.7 million shares outstanding as of Sept. 29. The company does not plan to offer a dividend in the foreseeable future.
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