08 Januari 2016

[080116.EN.BIZ] CP-NS Railway Bid Part Of Renewed Trend Of Cross-border Mergers


A RUNAWAY merger train is roaring along in its third year with last year's M&A volume breaking the US$4.1 trillion annual record set in 2007, Reuters reports.

To understand why this could stay on track for a while longer, look at North America's railway mega-deal.

Canadian Pacific in mid-November disclosed a $28 billion offer to buy Norfolk Southern. The Calgary-based railway is grappling with slow growth.

Its revenue is projected to increase by just 2.4 per cent in 2015 compared to almost eight per cent for each of the last two years. It's not alone: S&P 500 Index constituents suffered a collective third-quarter sales drop of 3.9 per cent, according to FactSet.

The shareholder roster at CP offers more insight. Its biggest investor was hedge fund billionaire Bill Ackman's Pershing Square. Activist investors like Mr Ackman have doubled their funds to some $130 billion in two years and piled into nearly every industry.

Cross-border merger transactions tend to increase. About 44 per cent of deal volume in 2007 included a buyer and seller from different countries, according to Thomson Reuters data. In 2015, it was about a third, suggesting there may be capacity for more, said Reuters.

Similarly, Canadian Pacific's offer was unsolicited. Such aggressive approaches, including ones, eventually withdrawn, accounted for 15 per cent of M&As in 2007 compared with about 14 per cent in 2015. Lofty valuations could make targets more demanding and eager suitors increasingly frustrated.

Source : HKSG.

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