Citi Research Hearing Genesee & Wyoming Looking For Partner In Bid For GRail

Citi Research provided its outlook on the potential GRail transaction. Referring to recent press release, according to which Genesee & Wyoming Inc(NYSE: GWR) is looking for a partner in its bid for GRail (Glencore's Australian coal haulage operations in Hunter Valley Australia), the analysts analyzed the potential outcomes and financial impacts on the company.

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"The total purchase price has been discussed to be in the US$1 billion range, which would make the transaction too large for Genesee without issuing equity and following the stock's post-Brexit decline, we see that proposition as uneconomic. Ultimately, we expect a partnership to be the likely avenue and for simplicity sake assume a 50/50 split. In this scenario the transaction could be accretive by 2–3 percent on 2017 EPS, if successful," wrote Citi.

According to the analysts, the press reports indicate Glencore is looking for bidders around A$1.5 billion, which generates ~A$100 million in annual EBITDA on ~A$160 million of revenue. This assumes an EBITDA multiple in 11–15x range. Based on 11x multiple and a 50/50 deal, analysts expect the GRail transaction to generate 11c of 2017 EPS or 2.8 percent accretion on their $3.90 estimate. At 15x accretion falls to 7c, or 1.8 percent.