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Rail News Home Short Lines & Regionals

June 2007



Rail News: Short Lines & Regionals

Fortress to acquire Florida East Coast



Fortress Investment Group L.L.C. has followed through on its pledge to acquire additional rail properties. Last month, the private investment management firm entered into a merger agreement with Florida East Coast Industries Inc. (FECI) under which Fortress would acquire the owner of the 351-mile Florida East Coast Railway through a cash transaction totaling about $3.5 billion.

Under the agreement, FECI would pay stockholders a special dividend of $21.50 per share in cash. Shareholders also would receive $62.50 in cash for each share of FECI common stock per the merger transaction, which has been approved by the company’s board.

Pending customary closing conditions, including regulatory and shareholder approvals, the transaction is expected to close in the third quarter. FECI — which also owns commercial real estate firm Flagler Development Group — then will become a privately held company for the first time since 1961.

“Our focus has always been about maximizing shareholder value,” said FECI Chairman, President and Chief Executive Officer Adolfo Henriques in a prepared statement, adding that the deal serves stockholders’ best interests.

However, one major shareholder disagrees. Satuloff Brothers Nevada Inc., which holds 16,000 shares, filed a lawsuit in a Palm Beach, Fla., circuit court claiming FECI breached its fiduciary duty by not investing more time to find another potential, more suitable buyer or conducting an auction to attract the highest possible bidder.

Satuloff Brothers Nevada is seeking to halt the sale or win monetary damages. FECI officials declined to comment on the lawsuit.

One done, one almost done deal
In February, Fortress acquired its first rail property after completing a cash transaction. The investment firm bought RailAmerica Inc., which owns and operates 42 regionals and short lines in the United States and Canada, for $16.35 per common share.

Fortress also recently reached an agreement to acquire a rail-related equipment provider. In April, the company landed a deal to purchase Interpool Inc., which provides intermodal containers and chassis, through a cash and stock transaction valued at about $2.4 billion that’s expected to close in the third quarter.

— Jeff Stagl


Washington state DOT selects short-line operators

The Washington State Department of Transportation (WSDOT) expected to complete its purchase the Palouse River & Coulee City Railroad (PCC) from the Watco Cos. Inc. by May’s end. So, the agency lined up operators for two of PCC’s three branch lines earlier in the month.

WSDOT selected US Rail Partners Ltd. to operate the “CW” line between Coulee City and Spokane, and the Washington and Idaho Railway Inc. to operate the “P&L” line between Marshall and Pullman. The companies expected to assume operations in mid-June pending operating agreements.

US Rail Partners plans to operate the CW line under the name Eastern Washington Gateway Railroad. Affiliated with the BG & CM Railroad operating in Idaho, the Washington and Idaho Railway currently operates the P&L line under a sublease from Watco, which will continue to operate the “PV Hooper” line between Thornton and Pullman per an existing operating agreement with WSDOT.

Meanwhile, Watco’s Kaw River Railroad (KAW) last month completed its fourth track lease transaction in as many years. The short line leased 14.6 miles of industrial track in the Bedford Industrial Park in North Kansas City, Mo., from BNSF Railway Co.

Owner of 16 short lines operating in 14 states, Watco formed KAW in 2004 to operate a 12-mile Kansas City-area line leased from Kansas City Southern. In 2005, KAW leased 16 track miles between Kearney and Birmingham, Mo., from BNSF, and last year, the short line leased K.C.-area track from the Kansas City Transportation Co. L.L.C.



Florida East Coast sets UPS service record

Last month, Florida East Coast Railway (FECR) reached a service performance milestone for United Parcel Service. The 351-mile regional marked 700-straight days without missing a transit-time commitment.

The failure-free service streak sets a new record for any transportation firm serving UPS, according to FECR. The railroad established its previous high-water mark of 698 days in 2005.

During the nearly two-year period, the regional handled more than 62,000 intermodal loads for UPS and met every transit-time commitment. The regional’s service performance helped UPS deliver more than 95 million packages on time, according to the shipper.

“We rely on partners like FECR to provide great customer service despite the daily challenges they may face,” said UPS Vice President of Transportation Randy Welch in a prepared statement.

FECR’s Intermodal Division also serves other parcel, intermodal marketing and less-than-truckload companies, and truckload and ocean carriers.

“We [plan] to further penetrate the retail truckload market between the Southeast U.S. and south Florida, and help potential customers understand the cost benefits of incorporating the railway into their distribution networks,” said FECR Assisstant VP of Intermodal Marketing David MacInnes.

 



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