Last month, Canadian Pacific agreed to buy Kansas City Southern in a deal that’s now worth $25 billion. But on Tuesday, Canadian National offered $30 billion to purchase the company, according to the Wall Street Journal.
Either deal would create the first freight-rail network connecting Canada, the U.S. and Mexico.
Aside from the top-line price tags, the bids have other key differences. CN is offering $325 for per KSU stock, including $200 a share in cash and 1.059 CN shares.
The bid beats CP’s offer by around 20%. CP agreed to pay $275 per share including $90 in cash per KSU stock and 0.489 CP stock. That deal was to be concluded by the middle of 2022.
Kansas City Southern is the smallest of five major freight railroad companies in the U.S. It’s a key transporter of autos and other industrial products from factories in Mexico into Texas and the Midwest.
CN expects the merger to generate $1 billion in EBITDA, the bulk coming from converting truck traffic to rails. The company believes it’s a better fit for KSU, given its larger footprint and minimal route overlap. Either deal would have to get regulatory approval.
The stock jumped 25% on March 22, after news of the CP buyout agreement came out. KSU stock has reached the 20%-25% profit-taking target, but there’s no reason to sell now that a bidding war is breaking out.
Its relative strength line spiked up as the stock jumped on the news. Kansas City Southern’s RS Rating has been rising and is now 79, just shy of the 80 or higher IBD recommends when evaluating stocks. Its EPS Rating is 72, as earnings dipped 3% in the last quarter after posting positive growth for two quarters.
Meanwhile, Canadian National, which is 14% owned by Bill Gates’ investment firm Cascade Investment, dropped 5.7%. Canadian Pacific Railway was mostly flat.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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