RailAmerica Inc. (RA:US), the short-line railroad operator that’s majority owned by Fortress Investment Group LLC (FIG:US), said it’s studying strategic alternatives that may include a sale of the company.
Deutsche Bank Securities Inc. is working as a financial adviser, Jacksonville, Florida-based RailAmerica said today in a statement. The shares jumped 11 percent to $24.49 in extended trading in New York.
Selling RailAmerica would enable Fortress to tap increasing demand for rail freight as the U.S. housing market recovers from a slump that dragged annual home sales to a 13-year low in 2008. Possible bidders for the railroad may include infrastructure funds, private equity firms and other rail operators, said Anthony Hatch, an independent rail analyst in New York.
“It’s a good time to be a big railroad and it’s a good time to be a holding company for a short-line railroad,” he said in a telephone interview. “They outperformed in the terrible recession, they outperformed in the recovery and they’ll outperform in whatever normal cycle we’re going to be in.”
RailAmerica shares have risen 49 percent this year, making the company the top performer on a Bloomberg Industries index of eight North American rail carriers that includes short-line operator Genesee & Wyoming Inc. (GWR:US) and Union Pacific Corp. (UNP:US), the largest U.S. railroad.
“These guys have come off several strong quarters of performance,” said Brad Delco, an analyst with Stephens Inc., in a telephone interview from Little Rock, Arkansas, referring to RailAmerica. “They recently refinanced their balance sheet, which was a fairly accretive transaction that helped drive value in the stock.”
RailAmerica moved 215,741 carloads in the first quarter, the most at the start of the year since at least 2008, according to data compiled by Bloomberg. Net income, excluding some items, doubled to $13 million in the quarter ended March 31, as revenue rose 15 percent to $143.4 million. The company may post full- year net income on the same basis of $61.1 million compared with $24.4 million in 2011, according to analysts’ average estimates compiled by Bloomberg.
The railroad’s confirmation of the review reversed its refusal to comment earlier on “market rumors or speculation” after the busiest trading day for the shares since October 2010. The Jacksonville Business Journal reported today on a May 14 article in Trains magazine that said a sale was in the works.
RailAmerica is “engaged in preliminary discussions with third parties regarding a potential sale,” it said in the statement, which didn’t identify any possible suitors.
Fortress, the New York-based investment firm, held a 60 percent stake in RailAmerica as of March 31, according to data (RA:US) compiled by Bloomberg. Gordon Runte, a Fortress spokesman, didn’t respond to telephone calls and an e-mail seeking comment on today’s trading volume and the earlier reports about a possible RailAmerica sale.
Today’s trading volume exceeded 900,000 shares, more than five times RailAmerica’s daily average in the past 12 months, according to data compiled by Bloomberg. The stock gained 2.7 percent to $22.13 in regular trading, giving the railroad operator a market value of $1.12 billion. Fortress rose 0.7 percent to $3.04.
Warren Buffett’s Berkshire Hathaway Inc. (A:US), the owner of railroad Burlington Northern Santa Fe, is among the interested buyers, according to an unidentified person cited by Trains magazine. Buffett didn’t respond to a request for comment sent to an assistant, Carrie Kizer.
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