Kansas City Southern (KSU) - Get Kansas City Southern (KSU) Report shares surged higher Tuesday after Canadian Pacific attempted to trump its domestic rival, Canadian National, with a $31 billion bid for the U.S.-based railroad operator.
CP said it will improve its bid to $300 per share for Kansas City Southern in a stock-and-cash deal its says represents a 35% premium to the railway's 'unaffected' closing price on March 19, when takeover speculation began to surface, and values its equity at $27.3 billion.
Kansas City Southern shareholders would get $90 in cash and 2.844 common shares in CP for each of their holdings if the deal is approved, Canadian Pacific said. it also said it was 'superior' to Canadian National's $33.6 billion approach, which is being scrutinized by both U.S. Surface Transportation Board (STB) and the Department of Justice over competition concerns.
"We believe that now is the right time for us to re-engage with KCS, as the regulatory uncertainty of the proposed CN merger has placed KCS stockholders in the unfortunate position of having to vote on the proposed CN merger and, as a consequence of approving such proposal, eliminate KCS's ability to consider superior offers," Canadian Pacific said.
"We are excited to provide KCS stockholders a significantly more attractive alternative to this situation: this opportunity to turn down the CN merger proposal and once again pursue a combination of CP and KCS--a more certain transaction which offers compelling short-term and long-term value that is actually achievable," the company added.
Kansas City Southern shares were marked 7.3% higher in early trading Tuesday immediately following the Canadian Pacific bid to change hands at $289.90 each.
Canadian Pacific shares were marked 0.8% lower at $72.16 while Canadian National rose 1.1% to $109.20 each after the operator said its deal was superior and would create "the premier railway for the 21st century, connecting ports in the United States, Mexico and Canada to expand North American trade and power economic prosperity."
"We will continue to take the necessary steps to deliver the many compelling benefits of this transaction to CN and KCS stakeholders," Canadian National said.
Last month, Kansas City Southern posted weaker-than-expected second quarter earnings but said a merger with Canadian National would deliver a "faster, cleaner and stronger railroad."
Kansas City Southern agreed to Canadian National's $33.6 billion bid that the groups said will create he first comprehensive rail network connecting Mexico, Canada and the United States in the deal, which valued the rail operator at $325 per share.