Race Heats Up
CN Railway said today it made an offer of $325 per share for Kansas City Southern. This business proposal consists of $200 per share in cash and 1.059 in shares of CN.
The bid represents a 21% premium to Canadian Pacific’s offer from last month, which offered to pay $275 per share, including $90 in cash for the transportation holding company, amounting to about $25 billion.
Today’s offer from CN Railway places a business valuation of $33.7 billion on KSU. Shares of the Missouri-based company rose over 14% in today’s trading session, while CN slipped almost 6%.
“CN is ideally positioned to combine with KCS to create a company with broader reach and greater scale, and to seamlessly connect more customers to rail hubs and ports in the U.S., Mexico and Canada. CN and KCS have highly complementary networks with limited overlap that will enable them to accelerate growth in single-owner, single-operator, end-to-end service across North America,” JJ Ruest, president and CEO of CN Railway, said in a statement.
The US company is an essential freight railroad in the US-Mexico trade and has networks in both countries. The company is the smallest of five major freight railroads in the United States (US), but it has huge strategic importance.
Regardless of who wins the bidding war for the American company, both business deals would mark the first freight-rail network that links the US, Mexico, and Canada. CN says this business deal would help generate about $1 billion in profit synergies and further increase business revenues as a result of low-cost trucking routes alternatives.
Canadian National also said it believes it is in a better position than rival Canadian Pacific because of a very low route overlap with KSU and a bigger footprint. The former manages the route that skips the Chicago congestion, allowing it to save days of travel time.
“We firmly believe our proposal is far superior to KCS’ existing agreement with CP because it offers superior financial value over the immediate and long-term, a more complementary strategic fit, greater choice and efficiencies for customers and enhanced benefits for employees and local communities,” said Chair of the Board of Canadian National Railway, Robert Pace.
Industry experts are warning that both deals would have to overcome certain regulatory hurdles, which can be an extensive process when it comes to US railways.
Prior to today’s jump in the business valuation of the company, Kansas City Southern was valued at about $24 billion, while CN’s business valuation was close to $84 billion. Bill Gates’s investment unit Cascade Investment owns a 14% stake in the latter.
The race for a new owner of Kansas City Southern is heating up after the CN Railway announced today a “superior” bid worth almost $34 billion for the Missouri business.