The competition for US trains has more and more applicants

0
38
The competition for US trains has more and more applicants
1619003278 083569 1619003371 rrss normal.jpg

Canadian National offers more than 20% more than Canadian Pacific for Kansas City Southern

If train mergers are going to be on a roll, Canadian National wants to get involved. The $ 80 billion freight company is offering $ 33.7 billion, including debt, for Kansas City Southern, more than Canadian Pacific proposed in March. You have little to lose.

The offer may seem off the rails: $ 325 a share is more than a fifth more than its rival. CN has said it can get 1 billion in synergies, more than the 780 million announced by CP. But like this one, it relies mostly on revenue synergies, in part because it expects to take share from truckers. Even if CN succeeds, the value of the synergies, taxed and capitalized, does not cover the premium by almost a quarter.

Cost synergies could help, but there are other problems. Like its rival, CN’s proposal includes a trust that will effectively close the transaction before regulators approve it. While the US Surface Transportation Board has the final say, the Justice Department released a report last week disapproving of this formula. The combination of KCS and CN would result in a larger company than an agreement with CP. This could make it even more difficult for regulators to get approval.

But in two decades there has been no concentration between large railways, known as Class 1. The operation could make financial sense if the winner acquires monopoly characteristics and at the same time receives approval from regulators. It is not impossible. Some 375 stakeholders, including customers, have shown their support for CP, in part because, like CN, it would create a transcontinental route that would make transportation more efficient.

SEE ALSO  This is how I prepared myself for my next race and I only needed a cell phone, a watch and some headphones

Canadian National’s two options were to wait and see if regulators would allow a rival to get bigger, or to jump in. The second strategy, in the worst case scenario, highlights the shortcomings of Canadian Pacific’s offer by imitating it. At best, you’ll be successful and jump on the rally bandwagon before the train completely leaves the station.