If Rail America buys RaiLink as offered, producers won’t see a disruption in short line service, according to RaiLink’s president.
“Farmers won’t see any change. Elevators will still be served in the same way by the same people with the same level of service. It’s a shareholder level transaction,” said Gordon Clanachan.
Last week the two companies agreed Rail America will buy all outstanding RaiLink common shares for $8.75 each. The deal is conditional on two-thirds of the shares being sold.
RaiLink’s board of directors has recommended shareholders accept the offer that will begin by May 28.
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As of May 14 RaiLink had about 8.36 million outstanding common shares so the transaction could be worth up to $73.2 million.
RaiLink, based in Edmonton, has 4,025 kilometres of track across Canada. On the Prairies, it has two lines serving northern Alberta. It doesn’t have significant capital to attract enough investors, said Clanachan, adding it will become a subsidiary of Rail America if the deal goes through.
“The shareholders are looking for value in their investment.”
Since Christmas shares have been trading between $5 and $6, but were as low as $4.50 one day in February, said Clanachan.
“Small capital stocks have had their problems in the market regardless of what industry they’re in. We are not getting good value for shares these days. So it was at a low level and I guess that made it attractive to companies like Rail America,” said Clanachan.
Rail America is an international company with 9,016 km of railway in the United States, Australia, Canada and Chile. The RaiLink president considers it a welcome investor because it seeks to buy all outstanding shares instead of initiating a “creeping takeover.” That’s when a party buys only some stock, leaving other shareholders at a disadvantage.
RaiLink has wanted a merger or buyout since February, when American short line operator OmniTrax Inc. bought 24.8 percent of the Canadian company’s outstanding common shares.
“We weren’t sure where that was all going. We as a company wanted to make sure we had a process that we were controlling to make sure we ended up with the best offer.”
Clanachan thinks there will be more short line takeovers in the U.S. but doubts larger companies will merge or that the Canadian picture will change.
