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Icahn Seen Completing First Takeover Since 2010: Real M&A

Investor Carl Icahn
Activist investor Carl Icahn hasn’t succeeded in buying an entire company since 2010, with bids for Clorox Co., Dynegy Inc. and others falling through, according to data compiled by Bloomberg. Photographer: Scott Eells/Bloomberg

Carl Icahn, the activist investor who offered to buy railcar maker Greenbrier Cos., is on the verge of completing his first full takeover in two years -- at least if the stock market is any guide.

Icahn hasn’t succeeded in buying an entire company since 2010, with bids for Clorox Co., Dynegy Inc. and others falling through, according to data compiled by Bloomberg. Traders are signaling Icahn may have better luck with Greenbrier after the Lake Oswego, Oregon-based company yesterday closed 37 cents above the $20-a-share cash offer from his American Railcar Industries Inc., showing expectations a transaction will get done at that price or higher.

Four years after a prior attempt at combining Greenbrier and American Railcar failed, the billionaire disclosed a 9.99 percent Greenbrier stake in November. He already owns a controlling interest in American Railcar, which has a market value of $734 million. While the renewed proposal yesterday seeks to create the biggest U.S. maker of railroad freight cars, the deal valuing Greenbrier at $542 million probably won’t be blocked on antitrust grounds, said Susquehanna International Group LLP.

“Clearly there’s a strategic fit,” Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said in a telephone interview. Icahn is “familiar with the industry and understands the dynamics. Given the size of this transaction, in theory it should be an easier deal for him to get done.”

‘Undervalued’ Shares

Icahn, 76, didn’t respond to a request for comment e-mailed to Susan Gordon, his spokeswoman. American Railcar Chief Financial Officer Dale Davies didn’t return phone or e-mail messages.

Greenbrier said Icahn’s bid “grossly undervalues” the company, according to a statement released after markets closed yesterday. As would a price up to $22 a share, Greenbrier said.

The Greenbrier board “remains ready and willing to continue discussions with Mr. Icahn,” according to the statement. “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.”

Today, Greenbrier shares gained 3 percent to $20.99 at 10:44 a.m. New York time. American Railcar advanced 3.7 percent to $35.62.

Bloomberg Billionaires

Icahn, the 44th-richest person in the Bloomberg Billionaires Index, disclosed his Greenbrier stake in a filing Nov. 13, saying the shares were “undervalued.” A week earlier, Greenbrier fell to the cheapest level since 2006, with an enterprise value 5.39 times earnings before interest, taxes, depreciation and amortization from the prior year, data compiled by Bloomberg show.

American Railcar, based in St. Charles, Missouri, and almost 56 percent owned by Icahn, said yesterday that it proposed buying Greenbrier for $20 a share in cash. While that was just 5.4 percent higher than Greenbrier’s most recent close, it was a 43 percent premium to the level on Nov. 12, before Icahn’s investment was revealed. At that price, Icahn would have to spend $489 million to purchase the shares he doesn’t already own, data compiled by Bloomberg show.

Greenbrier’s share price averaged $20.16 yesterday and closed at $20.37, signaling investors are betting a deal with American Railcar will be consummated.

More Manageable

“The stock’s trading right at or slightly above the price, so that would seem to indicate that the market’s confident a deal’s going to happen,” Greenwood Capital’s Todd said. This is a smaller, more manageable deal than Icahn’s most recent takeover attempts, making it easier to complete, he said.

Icahn’s takeover attempts haven’t worked out since 2010. Clorox plunged as low as $64 even with Icahn proposing to buy the bleach maker for $80 a share. He dropped the bid after concluding Clorox shareholders didn’t support a transaction. Power producer Dynegy, film studio Lions Gate Entertainment Corp. and steel-scrap recycler Commercial Metals Co. also received acquisition offers from Icahn that were terminated.

The last full buyout he completed was of closely held Daros Group for an undisclosed amount in June 2010, data compiled by Bloomberg show. While Icahn was able to amass an 82 percent stake in CVR Energy Inc., he withdrew his bid for the rest of the company this year.

Though discussions between American Railcar and Greenbrier broke off in 2008 after Icahn attempted to merge the two companies, Raymond James Financial Inc.’s Art Hatfield says the investor may have more luck this time.

‘More Confident’

“I’m much more confident now than I was then” that a transaction will be completed, Memphis, Tennessee-based Hatfield said in a phone interview. The analyst cited the low valuation for Greenbrier’s stock and an improved economy.

The outlook for the industry is better, according to Brad Delco, a Little Rock, Arkansas-based analyst for Stephens Inc. Railcar makers couldn’t expand output fast enough in the past year to keep up with demand for hauling sand used by oil and gas producers to extract fuel from shale rock. The recovery is still in the early stages, Delco said earlier this month.

“By combining the businesses now, you have the potential that there are still some good years ahead that a combined business could operate in,” he said.

Tanks, Hoppers

The two companies are complementary, said Salvatore Vitale, an analyst with Sterne Agee & Leach Inc. Greenbrier’s sales are generated more by auto carriers, lumber cars and intermodal cars, which can also be hauled by ships and trucks. American Railcar’s focus is tank cars, used to haul liquids, and covered hoppers for transporting bulk commodities such as grain, sugar or fertilizer.

Together, Greenbrier and American Railcar would control 36 percent of the industry’s deliveries, vaulting past current leader Trinity Industries Inc.’s 31 percent share, Susquehanna’s Bascome Majors wrote in a Nov. 19 report.

If Icahn succeeds, only two major railcar manufacturers would be left, something that U.S. antitrust regulators will consider, Vitale said.

“It’s going to face a pretty stiff review,” Vitale, who is based in New York, said in a phone interview.

Still, antitrust concerns probably won’t scuttle a transaction, said Majors, a New York-based analyst for Susquehanna.

Icahn will probably have to raise the price to persuade Greenbrier’s management to accept, which is why the shares closed above $20 yesterday, Vitale said before Greenbrier’s statement that called the bid insufficient.

Low Price

“The price seems a little on the low side,” he said. “It sounds like they’re just at the negotiating table. So, they can only go up.”

American Railcar could justify a purchase price of $23 a share, Majors said. A transaction in the mid-$20s would still make sense, Raymond James’s Hatfield said.

With a U.S. shale oil boom driving demand for tank cars and the economy improving, completing a deal is more probable now than it was in 2008, he said.

“It’s highly likely that the deal gets done at a higher price,” Hatfield said. “One of the reasons they didn’t press as hard in ’08 is that they were trying to get a deal done and the economy blew apart,” he said. “We’re just in a different world with the economy where it’s at today.”

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