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    CNR   CA1363751027

CANADIAN NATIONAL RAILWAY COMPANY

(CNR)
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Canadian National Makes $30 Billion Topping Bid for Kansas City Southern -- 3rd Update

04/20/2021 | 05:55am EDT

By Cara Lombardo

Canadian National Railway Co. made a roughly $30 billion topping bid for Kansas City Southern, likely kicking off a bidding war for a railroad operator that has already agreed to a sale to another Canadian rival.

Canadian National offered $325 for each Kansas City Southern, including $200 a share in cash and 1.059 Canadian National shares. The offer represents a 21% premium to Canadian Pacific Railway Ltd.'s agreement to pay $275 a share including $90 in cash for Kansas City Southern, a roughly $25 billion deal reached last month.

The Wall Street Journal reported Canadian National's plans earlier Tuesday, sending Kansas City Southern shares up more than 18% in premarket trading. Canadian National shares dropped 6%, while Canadian Pacific's rose 4%.

Kansas City Southern, the smallest of the five major freight railroads in the U.S., plays a key role in U.S.-Mexico trade, with a network across both countries. Its trains bring autos and other industrial products up from factories south of the border into Texas and the Midwest and haul American farm goods back to Mexico. It also runs a rail link along the Panama Canal.

That makes it a key strategic asset that doesn't come along often.

Both deals would create the first freight-rail network linking the U.S., Mexico and Canada by connecting ports in the three countries. Canadian National anticipates the combination it is proposing would generate incremental cash flow -- in the form of earnings before interest, taxes, depreciation and amortization -- of around $1 billion, mainly from increased revenues from offering lower-cost alternatives to trucking routes. The company believes it is better-positioned than Canadian Pacific given a larger footprint and minimal route overlap with Kansas City Southern. It also owns a route that bypasses Chicago congestion, which can save days of travel time.

Either deal would have to pass regulatory muster, which can be a prolonged process for railways in the U.S. A transaction would need approval from the U.S. Surface Transportation Board, which requires major railroad combinations to demonstrate they are operating in the public interest by enhancing competition.

Kansas City Southern has a roughly $24 billion market value, while Canadian National's is about $84 billion. Canadian National is roughly 14% owned by Cascade Investment LLC, Bill Gates' investment firm, according to FactSet. Canadian National has acquired other smaller U.S. operators including Elgin, Joliet and Eastern Railway Co., Wisconsin Central Ltd. and Illinois Central Corp.

Merger and acquisition activity is up significantly in 2021 compared with last year's slow start and has featured a healthy helping of bidding wars -- not to mention special-purpose acquisition company deals.

Typically a rare phenomenon, bidding wars are popping up frequently this year, partly because of sky-high valuations that leave a limited number of attractive acquisition targets, and low interest rates that make financing cheap and abundant. Most notably, laser maker Coherent Inc. was the subject of a frenzied three-way bidding war that ended in a nearly $7 billion deal last month.

Write to Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

04-20-21 0755ET

Stocks mentioned in the article
ChangeLast1st jan.
CANADIAN NATIONAL RAILWAY COMPANY 1.79% 136.42 Delayed Quote.-4.23%
CANADIAN PACIFIC RAILWAY LIMITED 2.39% 483.02 Delayed Quote.6.84%
KANSAS CITY SOUTHERN 3.01% 305.22 Delayed Quote.45.16%
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Financials
Sales 2021 14 933 M 12 295 M 12 295 M
Net income 2021 4 312 M 3 550 M 3 550 M
Net Debt 2021 11 487 M 9 458 M 9 458 M
P/E ratio 2021 22,5x
Yield 2021 1,81%
Capitalization 96 585 M 79 537 M 79 519 M
EV / Sales 2021 7,24x
EV / Sales 2022 6,68x
Nbr of Employees 24 577
Free-Float 99,0%
Chart CANADIAN NATIONAL RAILWAY COMPANY
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Technical analysis trends CANADIAN NATIONAL RAILWAY COMPANY
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TrendsBearishNeutralNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 26
Average target price 145,47 CAD
Last Close Price 136,42 CAD
Spread / Highest target 21,0%
Spread / Average Target 6,63%
Spread / Lowest Target -14,2%
EPS Revisions
Managers and Directors
NameTitle
Jean-Jacques Ruest President, Chief Executive Officer & Director
Ghislain Houle Chief Financial Officer & Executive Vice President
Robert L. Pace Chairman
Dominique Malenfant Chief Information & Technology Officer, EVP
Nayan Bharadwa Vice President-Automated Rail & Technology
Sector and Competitors
1st jan.Capitalization (M$)
CANADIAN NATIONAL RAILWAY COMPANY-4.23%77 804
UNION PACIFIC CORPORATION9.12%150 936
NORFOLK SOUTHERN CORPORATION21.97%71 812
CANADIAN PACIFIC RAILWAY LIMITED6.84%51 570
KANSAS CITY SOUTHERN45.16%26 945
XPO LOGISTICS, INC.21.10%16 125