Fortress Investment Group is selling the Florida East Coast Railway to a Mexican interest for $2.1 B and this is a quite interesting transaction for several reasons.  Fortress may be a seller that would sell to anyone willing to pay the right price – and you would expect as much, but the wider story is that FECR is a strong addition to someone else’s business strategy.  In this case, Grupo Mexico’s purchase is a strategic play to establish railroad transportation presence in the US and for the expansion of intermodal service. There is certainly growth potential for FECR as evidenced by the Ports they serve.  Florida is a huge consumption market and one that is relatively isolated by geography, making the its rail connections to the Southeast and East Coast states quite valuable.  Florida with its multiple seaports are an important part of the equation (largely) for the inbound cargo movement portion of the revenue-flow -and the FECR’s port connectivity is getting stronger. 

  • Port Miami – handling more than 90 plus containers per hour between ship arrival and departure with FECR direct-on-dock service operating daily trains into and out of the port.
  • Port Everglades – FECR operates a 43 acre intermodal domestic and International container facility and expansion is ongoing
  • Port of Palm Beach – has multi-model operations for rail, truck, barge and vessels served by the Port Railroad linked to FECR
  • St Lucie County – studies options for the Port of Fort Pierce, potentially served by FECR
  • Port of Canaveral’s on-dock rail connected container terminal served by FECR
  • Jacksonville Port Authority (JAXPORT) – served potentially by FECR. Further FECR interchanges with both Norfolk Southern and CSX at Jacksonville with access to over 60 percent of the U.S population within days. Further FECR currently holds strategic alliances with multi-modal partners that currently provide established routes between Florida and Eastern U.S, Canada, Central American and the Caribbean. 

 From a  wider perspective, the FECR acquisition the FECR is probably one important step in Grupo Mexico’s US strategy.  Building a presence in and in-between key markets in the growing consumption and industrial production markets of the southern tier of the US is clearly part of the longer-term play.  The US railroad market is becoming more complex with the Canadians and the Mexicans vying for a piece of the market – for them the keys are building value-add by connecting to key markets, to their main rail system assets and to important seaport assets.  We’re watching a different kind of North American system come focus. 

 

From the WSJ 3/28/17:  Grupo Mexico to Buy Florida East Coast Railway

Acquisition will complement Mexican company’s Texas operations

A Florida East Coast Railway freight train rides through West Palm Beach, Fla., in October.

Anthony Harrup

MEXICO CITY—Mexican mining and railroad company Grupo Mexico SAB has agreed to buy Florida East Coast Railway Holdings Corp. in a $2.1 billion deal, expanding its transport operations in the U.S. with the acquisition of the 351-mile railway.

Grupo Mexico, which operates Mexico’s Ferromex and Ferrosur railways through its transport unit GMXT, said Tuesday that the acquisition will complement its operations in Texas and increase the reach and scale of its North American rail operations.

GMXT will use $350 million in cash and take on $1.75 billion in debt to finance the transaction, which requires government authorizations before closing.

FEC, based in Jacksonville, Fla., is owned by funds managed by affiliates of Fortress Investment Group LLC, operates along the east coast of Florida, serving the ports of Miami, Everglades and Palm Beach and handling some 550,000 railcars a year.

The acquisition will increase earnings before interest, taxes, depreciation and amortization, or Ebitda, at Grupo Mexico’s transport division by about 20% to $930 million, based on 2016 earnings, the company said. The division’s net debt-to-Ebitda ratio will be about 1.8 times after the financing.

Grupo Mexico is one of the world’s biggest copper mining companies, and the leading rail freight operator in Mexico, where it competes with Kansas City Southern de Mexico and other smaller lines.

The acquisition is in addition to GMXT’s plan to invest $2 billion over five years.

Grupo Mexico shares were down 1.5% early Tuesday on the Mexican stock exchange.

Although the FEC price looks expensive compared with similar companies, “in the longer term we think this is a positive and strategic operation…that should bring benefits to the company,” Grupo Financiero Banorte said in a report.