American Railcar had talks with Greenbrier leading to the $20-a-share bid, according to a filing with the Securities and Exchange Commission. Hours later, Greenbrier said the 5.4 percent premium over yesterday’s closing price “grossly undervalues” the Lake Oswego, Oregon-based company. Icahn, who owns 56 percent of American Railcar, disclosed a 9.99 percent Greenbrier stake in November.
A tie-up would let Greenbrier eliminate high-cost capacity and boost its undervalued leasing assets, Peter Nesvold, a New York-based analyst at Jefferies & Co., said in a note today. While he said regulators may object to a deal as leaving too little competition, Greenbrier (GBX) added to the hurdles by balking at the offer and suggesting it could be a buyer.
“Greenbrier has repeatedly made clear to Mr. Icahn its interest in acquiring American Railcar at a modest premium, taking into account the current full valuation of American Railcar’s stock,” the company said in a statement.
American Railcar’s offer values the Greenbrier stock Icahn doesn’t own at $489 million, data compiled by Bloomberg show. St. Charles, Missouri-based American Railcar had a market value of $733.7 million at yesterday’s close.
Icahn disclosed his Greenbrier stake last month and sought to discuss options with management four years after dropping a push for an American Railcar tie-up. He resurfaced after a drop of more than 40 percent left Greenbrier at its cheapest relative to earnings since 2006, data compiled by Bloomberg show.
Greenbrier rose 7.4 percent to $20.37 at the close in New York, after the shares had declined 22 percent this year through yesterday. American Railcar gained 6.6 percent to $34.36 and has climbed 44 percent this year.
The acquisition price probably will increase before a transaction is completed, Art Hatfield, an analyst at Raymond James & Associates in Memphis, Tennessee, said in a telephone interview. The deal would still make sense if American Railcar paid in the mid-$20s per share, he said.
“American Railcar has a lot of room to maneuver on price and still have a very highly accretive transaction,” Hatfield said. He rates both companies as strong buys.
Icahn is bidding for Greenbrier as demand for railroad cars picks up from customers such as energy companies, according to Stephens Inc. Greenbrier shares had climbed 36 percent from Nov. 12, the day before Icahn announced his stake, through yesterday.
A combination of Greenbrier and American Railcar would overtake Trinity Industries Inc. (TRN) as the largest U.S. builder of railroad freight cars, with more than a third of the market, and would let the merged company cut expenses, according to Susquehanna International Group LLP.
Greenbrier, which had sales of $1.8 billion in its fiscal year that ended in August, makes railroad cars and equipment as well as freight barges. The company also provides leasing and other services such as repairs and maintenance. American Railcar had 2011 revenue of $519.4 million.
Icahn in a November regulatory filing disclosing his Greenbrier stake called the shares “undervalued” and said he wanted discussions with management “possibly relating to strategic opportunities.”
Greenbrier said then that Icahn had contacted Chief Executive Officer Bill Furman about the investment, without suggesting any specific proposals or timetable for future talks. The company also said it was committed to “maintaining an open dialogue with its shareholders.”
The billionaire investor took a similar stake in Greenbrier in February 2008, suggesting then that the company and American Railcar, in which he held a majority stake, hold merger talks.
The discussions broke off in June that year due to “certain unresolved issues,” Icahn said at the time, and he later cut his stake in the company.