Canadian National has started a battle for KCS with an offer that tops CP’s bid by US$8.7B.
Canadian National Railway (CN) has announced “that it has made a superior proposal to combine with Kansas City Southern (KCS) in a cash-and-stock transaction valued at US$33.7B, or US$325 per share”. The value of the offer is 21% higher than the earlier offer made by the Canadian Pacific Railroad (CP).
Both the CP and KCS Boards have approved their deal, but it has not yet been put to a shareholder vote at either company. CN is now waiving a lot more cash at KCS shareholders – under its offer KCS Shareholders would get US$200 in cash, compared to around US$90 from CP.
Furthermore, CN’s offer does not require a vote by CN shareholders, due to the level of CN stock being offered falling below the required threshold for a vote.
The price CN is offering has surprised CP. In an earnings call yesterday, CP CEO Keith Creel said: “So, were my eyes opened yesterday when I read the press release? The truth is yes, the headline number was undeniably eye-opening: 325 bucks per share.”
It seems unlikely that CP will try and outbid CN. Its US$25B offer was already a stretch for the company, and if completed would push its adjusted leverage rate to over 4 x. Ratings agency Moody’s noted this when CP made its offer, and subsequently downgraded CP to a Baa2 rating from a Baa1.