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Canadian Pacific Raises Bid for Kansas City Southern to $27 Billion

The proposed deal values Kansas City Southern at $300 per share.

Video source: YouTube, CNBC Television

Canadian Pacific Railway Ltd (NYSE: CP ) upped its bid for Kansas City Southern (NYSE: KSU ) to $27 billion, reviving a bidding war with its rival Canadian National Railway Co (NYSE: CNI ). 

On Tuesday, Canadian Pacific announced its revised figure, which values Kansas City Southern at $300 per share. Shareholders would receive $90 cash and 2.884 Canadian Pacific shares for each Kansas City Southern share held.

The announcement comes less than 10 days before Kansas City Southern shareholders will be asked to vote on the deal with Canadian National.

In May, Montreal-based Canadian National sought to take ownership of Kansas City Southern with a $33.6 billion takeover bid after Canadian Pacific failed to increase its own bid of $25 billion.

Kansas City Southern announced at the time that it was dropping the planned merger with Canadian Pacific and hitting Canadian National’s bid instead. Kansas City Southern paid Canadian Pacific a $700 million breakup fee as part of the cancellation.

Canadian Pacific said it has proposed to pay back that $700 million to Kansas City Southern as well as make Kansas City Southern whole for a $700 million breakup fee it would pay to Canadian National to terminate the latest deal.

Keith Creel, Canadian Pacific Railway CEO, said his Calgary-headquartered company’s new bid has terms similar to its rival’s but provides “significantly higher regulatory certainty” and “significantly higher value,” and urged Kansas City Southern shareholders to reject Canadian National’s higher bid.

Creel said, “We remain truly excited about once again pursuing this once-in-a lifetime partnership together and remain committed to everything this opportunity presents. These two companies have long, proud histories and an even brighter future, together.”

Kansas City Southern, the smallest of the remaining US railroads, has long been eyed as a target for a takeover since it controls critical cross-border routes with Mexico.  

Given that regulatory approval from the US, Canada and Mexico would all be needed to move forward, however, railroads have been wary of mergers. As the US economy tries to emerge from the pandemic-induced recession and grapples with supply chain issues, Kansas City Southern’s lines are being viewed at a high premium to bigger rail companies, The Associated Press noted.

Kansas City Southern first began talks of a potential takeover last summer when an unnamed group of investors bid $195 per share for the company.

After several rounds of bidding, Kansas City Southern announced a merger agreement in March with Canadian Pacific that valued the railroad at $275 per share

A deal with Canadian Pacific would create the first freight rail network through the US, Canada and Mexico. The new, combined company would operate about 20,000 miles of railway, connecting ports on the Gulf of Mexico, Atlantic and Pacific coasts.

It would also be the first Class I transaction of its kind since the 1990s, when Norfolk Southern Railway and CSX Transportation acquired 56% and 72%, respectively, of Conrail. 


Source: Equities News