Canadian National Makes $30 Billion Topping Bid for Kansas City Southern -- 3rd Update
April 20 2021 - 8:10AM
Dow Jones News
By Cara Lombardo
Canadian National Railway Co. made a roughly $30 billion topping
bid for Kansas City Southern, likely kicking off a bidding war for
a railroad operator that has already agreed to a sale to another
Canadian rival.
Canadian National offered $325 for each Kansas City Southern,
including $200 a share in cash and 1.059 Canadian National shares.
The offer represents a 21% premium to Canadian Pacific Railway
Ltd.'s agreement to pay $275 a share including $90 in cash for
Kansas City Southern, a roughly $25 billion deal reached last
month.
The Wall Street Journal reported Canadian National's plans
earlier Tuesday, sending Kansas City Southern shares up more than
18% in premarket trading. Canadian National shares dropped 6%,
while Canadian Pacific's rose 4%.
Kansas City Southern, the smallest of the five major freight
railroads in the U.S., plays a key role in U.S.-Mexico trade, with
a network across both countries. Its trains bring autos and other
industrial products up from factories south of the border into
Texas and the Midwest and haul American farm goods back to Mexico.
It also runs a rail link along the Panama Canal.
That makes it a key strategic asset that doesn't come along
often.
Both deals would create the first freight-rail network linking
the U.S., Mexico and Canada by connecting ports in the three
countries. Canadian National anticipates the combination it is
proposing would generate incremental cash flow -- in the form of
earnings before interest, taxes, depreciation and amortization --
of around $1 billion, mainly from increased revenues from offering
lower-cost alternatives to trucking routes. The company believes it
is better-positioned than Canadian Pacific given a larger footprint
and minimal route overlap with Kansas City Southern. It also owns a
route that bypasses Chicago congestion, which can save days of
travel time.
Either deal would have to pass regulatory muster, which can be a
prolonged process for railways in the U.S. A transaction would need
approval from the U.S. Surface Transportation Board, which requires
major railroad combinations to demonstrate they are operating in
the public interest by enhancing competition.
Kansas City Southern has a roughly $24 billion market value,
while Canadian National's is about $84 billion. Canadian National
is roughly 14% owned by Cascade Investment LLC, Bill Gates'
investment firm, according to FactSet. Canadian National has
acquired other smaller U.S. operators including Elgin, Joliet and
Eastern Railway Co., Wisconsin Central Ltd. and Illinois Central
Corp.
Merger and acquisition activity is up significantly in 2021
compared with last year's slow start and has featured a healthy
helping of bidding wars -- not to mention special-purpose
acquisition company deals.
Typically a rare phenomenon, bidding wars are popping up
frequently this year, partly because of sky-high valuations that
leave a limited number of attractive acquisition targets, and low
interest rates that make financing cheap and abundant. Most
notably, laser maker Coherent Inc. was the subject of a frenzied
three-way bidding war that ended in a nearly $7 billion deal last
month.
Write to Cara Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
April 20, 2021 07:55 ET (11:55 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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