Dive Brief:
- Fortress Investment Group is considering selling Florida East Coast Railway, the coastal freight operator it purchased then privatized in 2007 at a cost of $3.5 billion, sources told Bloomberg.
- The Florida East Coast Railway was created in 1895, when Henry Flagler purchased and then joined the existing Jacksonville, St. Augustine, Halifax, and Indian River railroads to create a new line that traversed the state’s coastline. It currently runs approximately 350 miles.
- Shares of Fortress rose 3.9% at the news, and the same sources told Bloomberg private equity firms, infrastructure companies and other railway operators are likely to take note of the potential sale. The railway is a spinoff from Fortress's other assets, including real estate, logistics and telecommunications.
Dive Insight:
The sale is not set in stone, and it's not uncommon for asset management firms to float a sale in order to pique investor interest, but assuming a sale does happen the Class II railroad may be purchased by a Class I counterpart or infrastructure group seeking to break further into Florida's market as the ports prepare for a potential post-Panamax import boost.
The most likely suitors are the Florida-railroad's current Class I partners: CSX and Norfolk Southern, which largely dominate rail transport throughout the U.S. East Coast. Their most recent quarterly reports reveal both companies' cash equivalents have risen throughout the year, with CSX having $603 million at the end of Q2 while Norfolk Southern has $866 million available.
That said, both companies have been suffering from a weakened freight rail market and may decide such an acquisition is not to their interest, even if it comes at the expense of a competitor. The Florida railway largely specializes in freight transport for heavy rocks along Florida.
