Railway group Canadian Pacific has agreed to purchase Kansas Metropolis Southern for $28.9bn together with debt within the largest takeover deal this yr, individuals with direct information of the matter mentioned.
The transaction is the most important in CP’s historical past and can see it add the smallest of the seven Class I US railway operators that dominate a big share of freight exercise within the nation.
The Calgary-based firm can pay $275 per share in cash-and-stock to purchase the US freight group, the individuals mentioned. The transaction is anticipated to be introduced on Sunday.
CP’s proposal represents a 23 per cent premium on Kansas Metropolis Southern’s closing inventory worth of $224 on the finish of final week. The deal values its fairness at $24.9bn earlier than the inclusion of debt.
The board of Kansas Metropolis Southern’s board permitted the supply on Saturday and the 2 corporations notified the Floor Transportation Board, the US regulator for freight rail, in regards to the deal, the individuals added. The acquisition will should be permitted by the STB.
Kansas Metropolis Southern’s fortunes have been carefully tied to commerce between the US, Canada and Mexico, with its important routes working north to south and linking the 2 international locations neighbouring the US. It additionally has intensive operations in Mexico and owns a 50 per cent stake within the Panama Canal Railway Firm.
The railway sector was hit arduous within the early section of the pandemic due to restrictions imposed by the US authorities to comprise the unfold of the coronavirus.
However the business’s prospects have improved markedly over current months, because the US accelerated its rollout of vaccines and enterprise exercise picked up significantly. US president Joe Biden’s strikes to strengthen US-Mexico commerce relations are anticipated to additional enhance railway exercise.
Shares of Kansas Metropolis Southern have greater than doubled up to now yr. The corporate rejected a takeover bid final September from a Blackstone and International Infrastructure Companions-led consortium that valued its shares at $21bn.
Kansas Metropolis Southern reported an 8 per cent drop in revenues in 2020 to $2.6bn and a 23 per cent improve in internet revenue to $617m. It employs about 6,200 workers, in keeping with Capital IQ, in contrast with almost 12,000 on the Canadian group.
Shares in CP have climbed 80 per cent over the previous yr and have a market worth of C$63bn ($50bn). The corporate’s largest shareholder is Chris Hohn’s TCI hedge fund which had an 8.4 per cent stake, in keeping with filings from the tip of final yr.
CP declined to remark. Kansas Metropolis Southern didn’t reply to a request for remark.
This text has been amended to replicate the truth that the Floor Transportation Board has not permitted the deal