Kansas City Southern (KSU) Soars as Bidding War Brews After Canadian National Railway (CNI) Makes a $33.7 Billion Offer

April 20, 2021 8:09 AM EDT

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Shares of Kansas City Southern (NYSE: KSU) exploded almost 16% in pre-open trading Tuesday after the company received a roughly $30 billion bid from Canadian National Railway (NYSE: CNI), topping the current bid from Canadian Pacific (NYSE: CP).

Canadian National announced today it has lodged a “superior” bid to merge with KSU in a cash-and-stock transaction based on $325 per share that values the company at $33.7 billion. The merger aims at creating “the premier railway for the 21st century,” which connects the United States, Mexico, and Canada.

“This rail and logistics network would reduce traffic congestion and prevent thousands of tons of greenhouse gas emissions from entering the atmosphere every day. This combination will also significantly expand the combined company’s total addressable market and provide growth opportunities across the rapidly growing USCMA network,” Canadian National Railway said in a statement.

Under the terms of the proposal, KCS shareholders will receive $200 in cash and 1.059 shares of CNI common stock for each KCS common share. This offer represents an implied premium of about 45% compared to the closing price on March 19, and a premium of over 20% on the offer made by Canadian Pacific. Based on the current market price of Canadian Pacific, its cash and stock bid values Kansas City Southern at roughly $269 per share as of this morning.

“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. CN and KCS 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. With safer service and better fuel efficiency on key routes from Mexico through the heartland of America, the result will be a safer, faster, cleaner and stronger railway,” said JJ Ruest, president and chief executive officer of CNI.

CNI projects $1 billion in EBITDAsynergiess on an annual basis.

“We firmly believe our proposal is far superior to KCS’ existing agreement with CP because it offers superior financial value over the immediate and long-term, a more complementary strategic fit, greater choice and efficiencies for customers and enhanced benefits for employees and local communities. We look forward to engaging constructively with KCS’ Board and all relevant stakeholders to deliver this superior transaction,” added Robert Pace, Chair of the Board of CNI.

Kansas City Southern has a market capitalization of about $24 billion, while Canadian National Railway is valued at about $84 billion.

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