In this year of financial kookiness around SPACs, bitcoin and nonfungible tokens, the hottest M&A target is an old-school U.S. railroad that traces its roots to the 1800s. And it’s now at the center of a bidding war.
Kansas City Southern rebuffed multiple offers from private equity firms last year before agreeing in March to sell itself to Canadian Pacific Ltd. On Dec. 14, rival Canadian National Railway Co. lobbed in an offer of its own. Its $325-a-share stock and cash bid for Kansas City Southern values the railroad at $33.7 billion including the assumption of debt. The proposal is a roughly 20% premium to the implied $275-a-share value of Canadian Pacific’s bid upon its announcement and more than 50% higher than what Blackstone Group Inc. and Global Infrastructure Partners reportedly offered for Kansas City Southern only in September.
Why the frenzy? As the only major carrier with a significant presence deep into Mexico, Kansas City Southern stands to be a prime beneficiary of any North American manufacturing renaissance that results from the supply-chain snarls of the pandemic and elevated trade tensions with China. Canadian Pacific and Canadian National are both eyeing the prospect of a seamless north-south railroad that can compete more effectively with trucks. But in the end, it may come down to this: Absent an overhaul of antitrust rules, Kansas City Southern is the last remaining viable takeover target among large North American railroads. Now that it's in play, those with the financial and strategic ammunition to make a deal work aren’t about to let the opportunity pass them by.