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2/5/2008



Rail News: M&A

Icahn's move to acquire Greenbrier and merge firm with ARI makes sense, Morgan Keegan says


Investment banking firm Morgan Keegan & Co. today upgraded The Greenbrier Cos.' rating from "market perform" to "outperform" based on the Wall Street firm's belief that a sale of the freight-car builder to billionaire investor and financier Carl Icahn "could now become a reality," according to a Feb. 5 ratings change announcement.

Icahn, who owns about 54 percent of American Railcar Industries Inc.'s (ARI) shares and serves as the freight-car builder's chairman, believes ARI's stock is undervalued and proposes ARI merge with Greenbrier, according to a Securities and Exchange Commission filing. Icahn submitted the filing to report he had purchased about 10 percent of Greenbrier's outstanding shares.

"Carl Icahn is in a unique position of being able to purchase Greenbrier and break up the components of the company to maximize value," Morgan Keegan analysts said in the announcement. "We believe if this deal were to go through it would be likely that Mr. Icahn would fold the Greenbrier's current lease fleet into his privately held American Railcar Leasing while integrating the manufacturing and services operations into the manufacturing and services divisions of American Railcar Industries."

The merger would make sense for ARI based on the company's product lines, competitive position and potential cost synergies, the Wall Street firm said.

"Historically in the rail-car supply industry, each manufacturer has focused on a core car type," analysts said. "Over the past 10 years however, due to consolidation and changes in the competitive landscape, manufacturers are broadening their product offerings and working to compete across the entire range of car types."

Greenbrier traditionally has competed as an intermodal car builder and ARI has been known as a tank and hopper car builder. However, late last year Greenbrier won a tank car order from GE Equipment Services — the builder's first foray into tank cars.

"With each company moving into the other’s respective spaces, there is not only a lot of potential synergy opportunity with this deal, but it would also prevent competition from increasing in each car type's market," Morgan Keegan said.


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