Another bid for Kansas City Southern on the table
A bidding war is breaking out for Kansas City Southern, with Canadian National Railway making a $33.7 billion cash-and-stock offer for the railway.
The bid trumps a $25 billion cash-and-stock proposal made by Canadian Pacific last month.
Any deal would capitalize on growing trade across North America by creating the first railroad that would link the United States, Mexico and Canada. Last year the three countries entered into a revamped regional trade pact, negotiated by President Donald Trump, that is expected to encourage trade and investment across North America.
A surge in manufacturing is already benefitting the companies. According to a research report Monday from Stifel, the six major railroads all reported double-digit increases in volume over the past week compared with a year earlier with strength in nearly every segment.
“These strong volumes, when coupled with other data points such as the ISM, should bode well for the economy,” analyst Benjamin Nolan wrote.
Shares of Kansas City Southern jumped more than 14% in Tuesday morning trading. CN's stock fell 7%.
CN said its offer is worth $325 per Kansas City Southern share. Kansas City Southern shareholders would receive $200 in cash and 1.059 shares of CN common stock for each share. The transaction would include about $3.8 billion in Kansas City Southern debt.
If the two companies were to combine, it would create a business connecting ports and rails in the U.S., Mexico and Canada.
“CN and Kansas City Southern 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," CN President and CEO JJ Ruest said in a statement.
A representative for Kansas City Southern didn’t immediately respond to an email seeking comment.
In contrast, Canadian Pacific said its proposed deal would create a combined company that would operate about 20,000 miles of railway, employ 20,000 people and generate annual revenue of about $8.7 billion.
Regulators have not approved a major railroad merger since the 1990s, but industry analysts have said that Canadian Pacific’s proposed $25 billion acquisition of Kansas City Southern has a good chance of getting the green light because there is little overlap between the two lines.
The service problems and economic damage that followed railroad mergers in the 1990s are part of why regulators adopted tough rules for major railroad mergers in 2001. Regulators have said that, generally, any merger involving a major railroad must enhance competition and serve the public interest.