Please ensure Javascript is enabled for purposes of website accessibility

Kansas City Southern Nearing Talks With Suitor Canadian National

By Lou Whiteman - Apr 23, 2021 at 4:19PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's a bidding war in the railroad business!

Kansas City Southern (KSU) is reportedly close to declaring that a $33 billion bid that was launched by Canadian National Railway (CNI 0.29%) is superior to a $30 billion offer from Canadian Pacific (CP 1.42%). This will set off a bidding war for one of the most coveted assets in transportation.

In March, Canadian Pacific (CP) announced plans to acquire Kansas City Southern in what would be the first major railroad deal in 20 years. But earlier this week, Canadian National (CN) stepped in, submitting its own unsolicited bid.

Two KSU trains pass on the rails.

Image source: Kansas City Southern.

Kansas City Southern has been silent in the days since, but Bloomberg reported Friday that the target in the coming days is expected to declare that the Canadian National proposal is likely to lead to a superior offer, allowing it to open talks with CN. The talks would be just one small step in what's likely to be a protracted takeover battle. Assuming Kansas City Southern does eventually strike a deal with CN that it considers to be superior, CP would have the opportunity to counterbid.

Either deal would end a 20-year moratorium on large-scale railroad consolidation put in place by U.S. regulators, and both suitors have proposed using a trust structure to get Kansas City Southern shareholders paid this summer ahead of what's likely to be a long review. But regulators have questioned that plan, and antitrust uncertainty is likely to weigh heavily on the minds of the target's board as it considers the new offer.

Kansas City Southern has long been viewed as an intriguing takeover target because of its relatively small size, which should make a deal easier to get by regulators because of its route network through the U.S. heartland and into Mexico. The Canadian railroads are looking to gain control of Kansas City Southern in part to capitalize on an expected North American manufacturing renaissance, thanks to the new United States-Mexico-Canada Agreement (USMCA) trade deal.

Canadian Pacific is the second smallest of the major North American railroads, and a combination between CP and Kansas City Southern would still be smaller than a stand-alone Canadian National in terms of total revenue. There's also little overlap between CP and Kansas City Southern rails.

The Bloomberg report, quoting unnamed sources, says that Kansas City Southern views the CN proposal as having more antitrust risk. But the company, according to the report, doesn't see those risks as insurmountable.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Kansas City Southern Stock Quote
Kansas City Southern
Canadian Pacific Railway Stock Quote
Canadian Pacific Railway
$71.65 (1.42%) $1.00
Canadian National Railway Company Stock Quote
Canadian National Railway Company
$113.64 (0.29%) $0.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.