© Reuters. FILE PHOTO: A car from a Kansas City Southern (KCS) Railway Company freight train is pictured in Toluca, Mexico October 1, 2018. REUTERS / Edgard Garrido / File Photo
By Ankit Ajmera
(Reuters) -Wall Street awaits Canadian Pacific (NYSE 🙂 to increase its bid for Kansas City Southern (NYSE 🙂 even at the cost of more debt to win the bidding war with Canadian railroads biggest rival, Canadian National.
In the latest twist in the takeover saga, the US rail operator on Thursday accepted Canadian National’s $ 33.6 billion offer, leaving CPR just five business days to make a new offer.
Analysts said the Canadian Pacific Railway was unlikely to pass up a chance to be the first railroad to easily cross the United States, Mexico and Canada, even though it had said it would not shoot. left his books to outbid the Canadian National.
“If CP is willing to compromise a bit more on the leverage ratio, it could … match or potentially beat CNR’s latest bid,” Scotiabank analyst Konark Gupta wrote in a note.
It all started in March when Canadian Pacific Railway agreed to buy Kansas City Southern in a $ 25 billion cash and stock transaction, but Canadian National exceeded the offer in April.
Canadian Pacific shares are up about 3% since its March 21 offer, while Canadian National has fallen about 9% from its April 20 offer.
This gives Canadian Pacific the opportunity to reduce the amount of any potential debt it would need to outbid its rival. As of Thursday’s close, the implied value of its offer rose to $ 286 per share from $ 275 per share, according to Gupta.
That’s just $ 39 per share less than Canadian National’s offer of $ 325 per share. To achieve this, Canadian Pacific would need to increase its debt ratio fivefold, compared to about four now.
It had a long-term debt of about C $ 8 billion ($ 6.61 billion) as of March 31, compared to C $ 13 billion for Canadian National.
A final result for either combination would still depend on regulatory approval by the US Surface Transportation Board (STB), which oversees freight rail transportation.
“The real power of this saga remains where it always has been … with the STB,” Cowen analyst Jason Seidl wrote in a note.
Kansas City Southern shares were down 1% and Canadian National 3.5%, while Canadian Pacific was up about 1% at the start of trading on Friday.
($ 1 = 1.2096 Canadian dollars)
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