Canadian National (CNI) Bids Higher for Kansas City Southern

The railroad space has been inviting a lot of attention of late regarding Kansas City Southern’s KSU proposed buyout.

Following Canadian Pacific Railway Limited’s CP last month’s deal to acquire Kansas City Southern for roughly $29 billion (including the assumption of $3.8-billion outstanding debt of the to-be-acquired entity), another Canadian railroad Canadian National Railway Company CNI also joined the race as a prospective bidder. Notably, this currently Zacks Rank #3 (Hold) player came up with an acquisition offer of higher value.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, the current proposal represents a 21% premium over the implied value of the transaction between Canadian Pacific and Kansas City Southern (greater than twice more cash consideration). Moreover, Canadian National’s offer price is 45% above Kansas City Southern’s closing price on Mar 19 (before the Canadian Pacific deal was announced).

Canadian National intends to buy Kansas City Southern in a cash-and-stock deal valued at $33.7 billion or $325 per share. The merger is expected to be accretive to this Canadian railroad operator's earnings per share in the first year after assuming full control over Kansas City Southern. Moreover, the combination is likely to derive synergies pertaining to EBITDA of nearly $1 billion per year.

Upon closure, the consolidated entity is likely to build a safer, faster, cleaner and stronger railway, apart from facilitating trade between the United States, Canada and Mexico, thereby promoting economic growth in North America. Besides improving efficiencies, the merged entity will broaden the range of choices for customers.

We believe, Canadian National’s proposal is not the last that we heard of in this context. We also expect Canadian Pacific to tender a higher bid.

Watch this space for further updates on the issue.

A Key Pick

A better-ranked stock in the broader Zacks Transportation sector is Herc Holdings HRI, carrying a Zacks Rank #2 (Buy),  presently.

Long-term expected earnings per share (three to five years) growth rate for  Herc Holdings is projected at 31.2%..

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Canadian National Railway Company (CNI) : Free Stock Analysis Report
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