Eastern Railroad Discussion > FEC to be Acquired

this could be interesting

By David Mildenberg
May 8 (Bloomberg) -- Florida East Coast Industries Inc., a
real estate developer and regional railroad operator, agreed to
be acquired by private equity funds managed by Fortress
Investment Group LLC in a transaction valued at $3.5 billion.
The $84-a-share offer represents a 13.3 percent premium
over Florida East Coast's closing price of $74.13 yesterday in
New York Stock Exchange composite trading, the Jacksonville,
Florida-based company said today in a statement on PR Newswire.

--Editor: Dufner

Story illustration: For a list of Florida East Coast's corporate
actions, see FLA US <Equity> CACS <GO> . To graph the company's
share performance, see FLA US <Equity> GP D <GO> . For today's
top transportation news, see TRNT <GO> .

Isn't Fortress the owner of RailAmerica? If so, I wonder if this acquisition means Fortress will try to sell off some RA properties? FEC is a much different animal in terms of services offered and mileage than RA's components. I'm surprised that NS never went after FEC in a big way.

Well Fortress is a money manager/hedge fund so maybe they caught NS off guard, who knows. At this point I guess we should be glad its still independent and not getting painted black. And yes Fortress was the acquirer of Rail America, like I said this will be interesting.

Speculation on my part. Recently, NS business train traveled to Miami. Were they attempting to make a deal then for the FEC and got knocked out by Fortress or could another deal by the works where as NS could acquire FEC and Fortress retaining the real estate which in itself will be worth mega bucks?

In the future, I could see NS making a play for FEC, KCS, or both. NS does a lot of business with FEC and with funds going into the Meridian Speedway, NS will protect its investments.

pal77 Wrote:
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> Well Fortress is a money manager/hedge fund so
> maybe they caught NS off guard, who knows. At
> this point I guess we should be glad its still
> independent and not getting painted black. And
> yes Fortress was the acquirer of Rail America,
> like I said this will be interesting.


NS looked at FEC when it was for sale in the mid-1990s and decided not to buy. They already got all the connection business and didn't feel like shelling out to get the rest of it. CSX got every other piece of business in the state, so they weren't going to be able to buy. Nothing has changed in the 10 years since. Even Fortress' buy doesn't change anything about the NS relationship....I don't think.

BobE

I don't think Norfolk Southern was trying to buy Florida East Coast. Why would they it want to? NS already gets the advantage of terrific service without having to pay up to own it. And if it were interested, the dumbest thing to do is make a public trip over the property with three or four business cars, thus alerting the whole world.

Fred

Is this sort of acquisition going to be good for the folks that make the FEC run? Can't help asking that as I have been impacted by this sort of thing on two occasions.

Well, it won't be good for FEC employees if they lose its president, John McPherson.

It occurs to me that there is probably $1 billion to be gotten for selling the right of way between Jupiter and Miami to the Tri-Rail people. They definitely want to run their trains on that corridor, and up until this morning the railroad's position was that the FEC was willing to sell land for Tri-Rail to build alongside the FEC but that a sale of all the property such as CSX did or an agreement to SHARE the present FEC tracks with Tri-Rail was not on the table and not up for discussion. But the private equity boys will want to squeeze every penny out of this, and the way to do that is to sell the whole thing. That would just about kill FEC service.

Fred

I would think there would be even more pressure on the bottom line even if that means deferring maintenance.

Why would they want to kill the goose that continues to lay the golden eggs? Business is good and expected to continue to improve, albeit not with the wild abandon of the past 1-1/2 years or so.

The fund is taking the company private, which does indeed remove a number of constraints on them. But this is FEC Industries that is being acquired. I'm not sure how this affects the operating company FEC Railway, yet. I'm not sure anybody does at this point, even Mr. McPherson.

Perhaps they were going after the real estate company, Flagler Development Group and the railroad is just along for the ride for the time being?

Boteman, good points. Soon enough the mist will clear.

Boteman Wrote:
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> Why would they want to kill the goose that
> continues to lay the golden eggs? Business is good
> and expected to continue to improve, albeit not
> with the wild abandon of the past 1-1/2 years or
> so.
>
> The fund is taking the company private, which does
> indeed remove a number of constraints on them. But
> this is FEC Industries that is being acquired. I'm
> not sure how this affects the operating company
> FEC Railway, yet. I'm not sure anybody does at
> this point, even Mr. McPherson.
>
> Perhaps they were going after the real estate
> company, Flagler Development Group and the
> railroad is just along for the ride for the time
> being?

I look at this and definitely feel they're likely after the real estate company. They'll probably see what they can get out of the railroad (sale of track right-of-way to TriRail already mentioned), but the real estate company is probably the big fish to them. Fortress probably has a heck of a lot more real estate guys than it does railroad guys, so they might just leave the railroad to the guys who are running it now, just telling them (like all managers) to try to get a couple extra bucks.

"NS looked at FEC when it was for sale in the mid-1990s and decided not to buy. They already got all the connection business and didn't feel like shelling out to get the rest of it."


This sounds a lot like UP + CNW !!

How do we get Fortress to buy Pan Am RR? PAR needs a regime change to someone focused on running a RR for the benefit of the region's shippers.

JPB Wrote:
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> How do we get Fortress to buy Pan Am RR? PAR needs
> a regime change to someone focused on running a RR
> for the benefit of the region's shippers.

Mellon isn't interested in selling it. It makes good money obviously, or else he would have dumped it. He has more than enough access to money that if he could make more money with something else he would. Does PAR do it in many ways on the cheap? Of course they do. Does it work? Most of the time it does. I don't think Fortress buying out PAR would be much to the benefit of New England's shippers.

JPB Wrote:
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> How do we get Fortress to buy Pan Am RR? PAR needs
> a regime change to someone focused on running a RR
> for the benefit of the region's shippers.

Florida is in a growth trend. The place is booming, and FEC seems to run a lot of loads in both directions. Maine hasn't reached that level of economic activity (yet).

FECI owns a lot of real estate linked to the railroad, and could certainly participate in the development of property along an expanded TRI-Rail network. That could get county interest in making favorable zoning concessions, too.

BTW, Martin County (just north of Palm Beach Cty) isn't in Tri-Rail. If they decided to join it, and bring trains north to Stuart, that could allow FECI to develop a lot of property.

M-636 Wrote:
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BobE wrote:

> "NS looked at FEC when it was for sale in the
> mid-1990s and decided not to buy. They already got
> all the connection business and didn't feel like
> shelling out to get the rest of it."
>
>
> This sounds a lot like UP + CNW !!



Sorta, but not really.

FEC dead ends in Miami. At Jax, NS and CSX...but if NS buys FEC, how much CSX interchange, especially intermodal goes bye-bye?

CNW linked UP to NS, Conrail and CSX by cutting out a middleman. ALso, CNW had borrowed a lot of money from UP to fund the PRB expansion...UP didn't have to pay itself back! Anyhow, I made beau-coodles of bux for my clients buying CNW at $16 and selling it to UP nine months later for $35!

BobE

BobE Wrote:
-------------------------------------------------------
> M-636 Wrote:
> --------------------------------------------------
> -----
>
>
> BobE wrote:
>
> > "NS looked at FEC when it was for sale in the
> > mid-1990s and decided not to buy. They already
> got
> > all the connection business and didn't feel
> like
> > shelling out to get the rest of it."
> >
> >
> > This sounds a lot like UP + CNW !!
>
>
>
> Sorta, but not really.
>
> FEC dead ends in Miami. At Jax, NS and CSX...but
> if NS buys FEC, how much CSX interchange,
> especially intermodal goes bye-bye?
>
> CNW linked UP to NS, Conrail and CSX by cutting
> out a middleman. ALso, CNW had borrowed a lot of
> money from UP to fund the PRB expansion...UP
> didn't have to pay itself back! Anyhow, I made
> beau-coodles of bux for my clients buying CNW at
> $16 and selling it to UP nine months later for
> $35!
>
> BobE

I did the same thing with CR, buying it at $98 and selling at $115 within several months. Unfortunately that was only the fake money of my 4th-grade stock picking class!

Well, some folks made boocoo bucks between yesterday and today, as the stock jacked from $74-ish to a likely close around $84-1/2 today. Not bad for 24 hours' work!

To be honest, I think foamers need not worry. The FEC that we have all come to know and love will likely not change if this deal closes towards the end of the year, as projected.