Shares of U.S.-based railroad operator Kansas City Southern (NYSE:KSU) KSU fell 3.87% on May 17 to close the trading session at $297.04. This downside followed the blow dealt by the U.S. Surface Transportation Board (STB) to the Canadian railroad operator Canadian National Railway Limited’s CNI aspirations to acquire Kansas City Southern.
Notably, the U.S. regulator turned down Canadian National’s application to form a voting trust that would take over and own Kansas City Southern while STB reviews the $33.6 billion or $325 per share offer. The total enterprise value is inclusive of the assumption of the $3.8-billion debt of Kansas City Southern.
We remind investors that last week, Kansas City Southern had announced the receipt of the revised takeover bid from Canadian National. Per the revised proposal, each share of Kansas City Southern common stock will be exchanged for $200 in cash and 1.129 shares of common stock of the Canadian railroad operator.
After consultation with legal experts and financial advisors, Kansas City Southern accepted Canadian National’s offer. Simultaneously, management announced that the company intends to terminate the deal inked in March with another Canadian railroad operator Canadian Pacific (NYSE:CP) Railway Limited CP.
Coming back to Canadian National’s revised proposal, the railroad offered to build a voting trust. Moreover, per the proposal, shareholders of Kansas City Southern will receive a merger offer immediately upon closing Canadian National’s voting trust. While declining the plan to institute a voting trust, STB reportedly said that it was unable to review Canadian National’s offer due to absence of a detailed merger agreement.
Canadian National, however, remains unperturbed by STB’s decision and brushed it aside as a minor setback only. The company now intends to resubmit the plan along with the merger agreement, which last week was deemed to be superior by Kansas City Southern to Canadian Pacific’s offer.
Authorities at Canadian National are confident of its ability to prove its voting trust’s credibility as a body in favor of public interest once STB reviews all the details involved in the plan.
Zacks Rank & Key Pick
Kansas City Southern like Canadian National and Canadian Pacific currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the Zacks Transportation sector is Herc Holdings (NYSE:HRI) HRI, which presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term (three to five years) expected earnings per share growth rate for Herc Holdings is projected at 42.9%.
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Canadian National Railway Company (CNI): Free Stock Analysis Report
Kansas City Southern (KSU): Free Stock Analysis Report
Canadian Pacific Railway Limited (CP): Free Stock Analysis Report
Herc Holdings Inc. (HRI): Free Stock Analysis Report
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