Greetings – unlike pipelines in the Northeast, this is a fluid situation....waiting on final news (but I recall that this story started on a Saturday at midnight and was escalated on a workday, at least, but at 6 am)...
Bloomberg (and Reuters and the WSJ) report.
Kansas City Southern is close to accepting a takeover proposal worth more than $33 billion from Canadian National Railway Co., according to people familiar with the matter.
- The offer tops a $25 billion one from smaller rival Canadian Pacific Railway Ltd. that Kansas City
Southern had agreed to earlier this year. An announcement could come as early as Thursday. - Representatives for CP and CN declined to comment. A Representative for Kansas City Southern
didn’t immediately respond to a request for comment.
Lots going on in the industry that otherwise would take center stage – for instance, there are rumors are that CSX has spent/is spending north of $2B on its two deals (PAR & Quality) – some shippers think it should be spent on hiring....in any event, that kind of strategic move warrants an in-depth (Investor Day!) discussion, IMHO....even if strategically (from a map and commodity and a beast-feeding sense) they seem sound...
From the Tweets:
(EARLY AFTERNOON) - Action! The KSU deal appears to be moving from the “War of Words” to battle stations as KSU seeks to receive CN’s final (post data room) offer, and act on it; they will choose the higher NET price (including risk/time/cash% factors). If they go with CN, then CP has 5 days to study and respond. This could be “done” before the STB rules on CN’s Voting Trust....(NOTE THAT APPEARS TO BE HAPPENING NOW AND EVEN FASTER THAN WHAT I WROTE LAST NIGHT – ATTACHED)
M&A Caveat: We experienced analysts can opine on the STB (and other government interests, notably the Senate), shippers, on the three managements, on the nature of competitive overlap (and the interest by other entities on any divested assets, etc). But – as we move to game theory, and deal tactics (as opposed to rail merger strategy), we move out of the expert zone of rail analysts, even if they have analyzed every deal since SFSP (that’s a club of one). As the share percentage held by the “Arbs” increases so too do the interest in longer-term rail strategy diminish.
Some thoughts:
- CN not expected to bid against itself so I don’t fully buy the WSJ headline: “Canadian
National Railway Co is expected to sweeten its takeover bid for Kansas City Southern, according
to people familiar with the matter, as it seeks to outflank a rival and clinch a $30 billion deal for
the railway operator.” - Covering the breakup fees (KSU to CN=$700mm) is “standard practice, not a sweetener” I am
told - But they can put in a reverse break-up fee (in the event of no VT and later rejection of the
combination by the STB) - And they can put in a collar or use another mechanism to lock in the $325 price, rather than it be so variable
- One scenario that looks good (to ME, anyway) is CP getting the assets that CN would be required to divest within KCS/USA, and thereby becoming a (reluctant) friend to the CN deal, a “split-the- baby”/CRR-lite deal that has actually been discussed by some famous (HOF) leaders emeritus since the CN announcement...
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
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