Share
October 22, 2018 12:00 PM, EDT

Cargo Boom Drives Carl Icahn’s $1.34 Billion Sale of American Railcar

Carl Icahn Carl Icahn of Icahn Enterprises. It is said his investment in American Railcar has generated a total return of 423%. (Victor J. Blue/Bloomberg News)

Billionaire investor Carl Icahn agreed to sell American Railcar Industries Inc. for $1.34 billion, quintupling his investment as a freight boom spurs a rebound in demand for rail equipment.

Icahn Enterprises agreed to sell the maker of tank and hopper cars at $70 a share, 51% above its closing price Oct. 19, to a subsidiary of hedge fund ITE Management LP. The deal is valued at $1.75 billion including debt, St. Charles, Mo.-based American Railcar said in a statement Oct. 22.

Rail carloads are climbing as the robust U.S. economy drives freight demand and a shortage of truck drivers pushes some cargo to trains. Orders for freight cars jumped 35% to 23,788 in the second quarter from a year earlier, according to the Railway Supply Institute. It was the biggest quarter for railcar orders since the end of 2014.

graph of freight

Icahn’s sale marks a retreat from a previous attempt to consolidate the rail-equipment industry after he acquired a majority interest in American Railcar in 2010.

He took a 10% stake in Greenbrier Cos. in 2012 and began negotiations for American Railcar to buy the competitor. Greenbrier rejected several offers, and eventually Icahn walked away. His investment vehicle agreed to sell its interest in American Railcar’s leasing operation almost two years ago to Sumitomo Mitsui Banking Corp. in a deal valued at $3.4 billion.

Icahn Enterprises said the investment in American Railcar has generated a total return of 423%. He stepped down as chairman of the company in 2014.

Railroad tracks

Luke Sharrett/Bloomberg News

The Oct. 22 deal puts American Railcar back in the hands of ITE partner Jim Unger. He founded American Railcar, was CEO for 14 years until 2009 and left the following year as executive vice chairman.

Unger’s willingness to pay such a high premium probably will give a boost to other rail-equipment makers, including Greenbrier and Trinity Industries Inc., Susquehanna Financial Group analyst Bascome Majors said.

The deal is seen “as a constructive signal toward both valuation of publicly traded peers and the buyers’ view of the railcar cycle,” Majors said in a note to investors.

American Railcar jumped 51% to $69.75 at 9:46 a.m. in New York, the most intraday since the shares began trading in 2006. Greenbrier climbed 4.1%, and Trinity gained 2.9%. American Railcar had gained 11% this year through Oct. 19, while the Russell 3000 Railroad Equipment index climbed 6.7%.

The purchase is expected to close this quarter, subject to customary conditions.