[220421.EN.BIZ] CN Rail tops CP Rail's Kansas City Southern bid by US$5 Billion

 

THE Canadian National Railway (CN) made a surprise offer of US$30 billion topping its rival the Canadian Pacific Railway's (CP) offer to buy the Kansas City Southern Railway for $25 billion, reports Bloomberg.

CN Rail tops CP Rail's Kansas City Southern bid by US$5 billion

THE Canadian National Railway (CN) made a surprise offer of US$30 billion topping its rival the Canadian Pacific Railway's (CP) offer to buy the Kansas City Southern Railway for $25 billion, reports Bloomberg.

Canada's two biggest railways are vying for a rail network that links their country with the US and Mexico as a reworked trade alliance gets underway and the economic recovery from the Covid crisis gathers steam.

Kansas City Southern's sprawling system connects farms in the US Midwest to ports along the Gulf of Mexico. It also reaches deep into Mexico, which made up almost half of the Kansas City, Missouri-based company's revenue last year.

"Railroads don't come up for sale very often," said CN chief executive CEO Jean-Jacques Rust. "Our vision has been for a long time to create a very solid north-south network."

CN estimated that there's a pool of about $8 billion of annual truck freight that it could convert to rail and projected that a deal would add to earnings in its first full year. Profit could increase more than 10 per cent when efficiency gains kick in, CN said.

The combination would create a "railroad that can really rival with trucks," said Mr Ruest said. "A lot of the freight today that moves north-south is only getting a partial ride by rail or is actually moving all truck, and these are huge distances."

Said Little Rock's Stephens Research analyst Justin Long: "We think Canadian National understood the competitive challenges this deal could present, given the much broader geographic reach of the pro forma CP network. The Canadian railway face-off has begun."

Whoever doesn't win Kansas City Southern would face a competitive disadvantage, making a bidding war likely, said Citigroup analyst Christian Wetherbee.

Source : HKSG / Photo : Trains.