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On Thursday, April 18, Greenbrier Companies, Inc. (GBX) acquired the rail-car manufacturing business, ARI Manufacturing, from ITE Management for $400M. Shares of GBX rose nearly 5% in reaction to the news. But the largest beneficiary of the deal might not be either ITE Management or GBX. The deal's valuation creates a substantial repricing opportunity for shareholders of competitor FreightCar America (NASDAQ:RAIL). I believe a "sum of the parts" re-valuation could take RAIL shares north of $20 per share.
Often, the valuation of small-cap stocks is more art than science, as factors such as liquidity, analyst coverage, and other businesses with comparable scale make small-cap analysis difficult. But just as in residential real estate, when the house next door sells, you get a very good idea of what your home is worth.
The GBX/ITE deal offers a dramatic potential re-rating opportunity for RAIL because of the near identical manufacturing assets of both ARI Manufacturing and RAIL, but hugely disparate market valuations. The $400M GBX paid for ARII's Manufacturing assets creates credible upside for RAIL, whose market cap is currently under $86M.
Highlights of the GBX/ITE Management deal
Last week, GBX announced that it will acquire American Railcar's manufacturing business (ARI Manufacturing) from ITE Management. The transaction is valued at $400 million when adjusted for the net tax benefits accruing to GBX. The details of the transaction, along with its strategic rationale, are outlined clearly in GBX's investor presentation. Investors cheered the transaction, sending GBX shares higher by nearly 5% when the deal was announced.
