Strong demand boosts FreightCar IPO

Shares, offering price increased; 11% gain on 1st day of trading

By James P. Miller

Tribune staff reporter

Published April 7, 2005

Chicago-based FreightCar America Inc.’s initial public offering got a warm reception on Wall Street Wednesday, as investors hurried to put down bets on coal’s continued resurgence as an energy source.

FreightCar America claims a dominant 81 percent share of the North American market for the specialized railcars that haul coal. With energy-pinched U.S. electric utilities boosting their coal-burning operations, coal production–and the number of mile-long trains hauling that coal to power plants nationwide–have been increasing strongly.

In January, closely held FreightCar disclosed plans to sell as many as 6 million shares at a price in the $16-$18 range. But demand for the offering proved so strong that underwriters for the one-time Bethlehem Steel Corp. unit on Tuesday boosted the offering price to $19 and sold a total of 8.5 million shares.

FreightCar shares began trading publicly on the Nasdaq stock market Wednesday under the symbol RAIL. By late morning, the stock had climbed about 13 percent above the offering price before closing at $21.03, a nearly 11 percent gain.

At that price, FreightCar has a market capitalization of about $269 million. The stock’s performance is striking, especially since FreightCar hasn’t turned an annual profit since 2000. Last year, sales climbed 97 percent, to $482.2 million, and the company recorded a net loss of $24.9 million.

The expanded offering won’t put more money in FreightCar’s coffers, however. The IPO has two elements: the sale of newly created shares and the sale of existing shares by certain major stockholders.

FreightCar originally said it intended to sell 5.1 million new shares, and that number didn’t change. The $96.9 million in gross proceeds from that sale ($86 million after expenses) will go to the company.

The underwriters initially had planned to allow existing stockholders to sell 900,000 of their shares via the public offering. But as the strength of investor demand became apparent, the number was increased twice, and the company’s original investors ultimately sold 3.4 million shares to the public.

The underwriters, led by UBS Investment Bank, have permission to sell an additional 1.28 million shares to cover overallotments. In the event those shares are needed, FreightCar noted, they will be sold by the selling stockholders, not the company.

Investors who cashed out by selling a portion of their shares include Caravelle Investment Fund, John Hancock Life Insurance Co., Trimaran Investments II LLC., FreightCar Chairman Camillo M. Santomero III and Chief Executive John E. Carroll, Jr.

FreightCar was owned by Bethlehem Steel from its 1901 founding until 1991, when it was purchased by a company then known as Johnstown America Industries Inc. That firm later became Transportation Technologies Inc., which sold the railcar business in 1999 to an investor group that included some of the company’s management.

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