Regardless of who wins the bidding war, or the final price paid, the winners of the looming battle look to be Kansas City shareholders.
Canadian Pacific stock was recently down 0.4% to $363.89, while Canadian National stock is down 7.1% to $109.70. Both proposals for Kansas City are cash and stock. When stock is used in mergers, it creates buying and selling pressure as arbitraguers set up positions trying to profit between current pricing and the value received when a deal closes.
The new bid from Canadian National (CNI) is $200 in cash and 1.059 Canadian National shares for each Kansas City share. That works out to roughly $325 a share for Kansas City shareholders.
The Canadian Pacific offer is also a cash-and-stock deal. That prior bid is $90 a share and 0.489 Canadian Pacific share for each Kansas City share. That deal is worth roughly $270 a share.
The Canadian National bid is higher, and includes more cash than the Canadian Pacific bid. That’s something Kansas City shareholders might prefer.
“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,” said Canadian National CEO J.J. Ruest in the company’s press release. He believes the combined railroad can realize about $1 billion in cost and revenue “synergies.”
The synergies targeted by Canadian Pacific amounted to $780 million.
The Canadian National bid is only a proposal at this point—a letter sent to the board of Kansas City. Now investors have to wait for responses from Kansas City as well as Canadian Pacific.
All three railroads weren’t immediately available to comment on the new proposal and what the final price for the smaller railroad would ultimately be.
Write to Al Root at firstname.lastname@example.org