Kansas City Southern Shares Slip Following Report of Rejected $20 Billion Takeover Bid

Private equity group Blackstone, as well as buyout group Global Infrastructure Partners, has reportedly made a $20 billion approach for the rail and freight group.

Kansas City Southern  (KSU) - Get Report shares slipped lower Thursday following a report from the Wall Street Journal that the rail and freight group rejected a $20 billion takeover approach.

The Journal Blackstone Group, as well as buyout group Global Infrastructure Partners, were willing to pay $208 per share for Kansas City Southern, a level that would represent a 12% premium to the stock's Wednesday closing price and value the group at around $20 billion. A previous offer of $200 per share was also rejected, the Journal reported.

"We are not surprised that the reported bid of $208 per share was not accepted," said Credit Suisse analyst Allison Landry, who suggests a successful bid could require a premium of as much as 50% to the group's pre-takeover bid price, which could mean a bid of $235 per share. 

"We maintain our view that the success of a deal will come down to the value that KSU believes it can create over time by operating independently and how much an infra fund is willing to pay and lever up," she added.

Kansas City Southern shares were marked 1.2% lower in early trading Thursday to change hands at $182.80 each, a move that would trim the stock's year-to-date gain to around 20%.

Kansas City Southern still expects 2020 earnings to be little-changed from last year's levels, when it recorded a bottom line of $6.91 per share, based on a presentation to the Cowen 2020 Global Transportation and Sustainable Mobile Conference yesterday. 

"In the third quarter, we're seeing particular strength in our franchise cross-border volume growth and also our refined product shipments into Mexico. From an outlook perspective, we are continuing to be on track to deliver $500 million plus of free cash flow during the course of the year. We're going to reestablish full year OR guidance at 60% to 61% for the full year," said CFO Michael Upchurch. "That was the guidance that we provided back in January and then pulled in April as a result of the pandemic uncertainties. And we are also guiding to full year EPS to be roughly flat on a year-over-year basis and have some additional good news to share with respect to our income taxes."