On Tuesday, the
"CN's proposal represents a 21 per cent premium to CP's offer and more than double the cash per share, resulting in not just a greater value but also greater certainty of value for KCS shareholders," said CN chief executive
"Our superior access to the capital market, stronger balance sheet, lower cost of financing and ability to realize superior and higher-quality synergies allow us to make a more attractive offer to KCS shareholders."
In a news release late Tuesday afternoon, CP said CN's bid is "massively complex and likely to fail" because it would create the third-largest Class 1 railroad in
"The only combination involving KCS that is clearly in the public interest is the one that Canadian Pacific has proposed, which has already garnered support from over 400 shippers and other stakeholders," it said.
"While remaining the smallest of the six
CN is offering
The CP Rail deal offers 0.489 of a CP share and
Analyst
"Our current expectation is that CP may match CN’s offer, after which we would expect CN to counter with an even higher offer," he said in a note for investors.
"While we see the strategic rationale for CN to acquire KSU, we also believe CN is keen to keep CP from acquiring KSU as a CP-KSU combination would represent a greater competitive threat to CN, especially for north-south intermodal traffic."
On the analyst call, Ruest estimated the CNR-KCS combination would result in a
The other 20 per cent would come from cost savings. CN says its network has only 100 kilometres of direct track overlap and only five customers that are served by both railways, although it has a north-south line about 640 kilometres further east of KCS's lines.
Desjardins analyst
"At first glance, while CNR’s offer is superior from a financial standpoint, we believe the regulatory risk for its offer is higher than that for CP, which has no network overlap with KSU — something that KSU’s board will have to consider when evaluating the proposal," he said.
Ruest said CN's bid doesn't require approval from its shareholders, unlike CP's bid, adding the timing of CN's bid is opportunistic.
"Why now? The board of KCS has decided it wants to crystallize the value for their shareholders, therefore the opportunity is now," he said.
In a letter to the KCS board of directors, Ruest said the CN offer offers greater value certainty due to the larger cash component.
CN plans to assume
When CP Rail and KCS announced their friendly deal last month, they said it would create the first rail network connecting
CP Rail chief executive
The combination of CP Rail and KCS would create a combined company that would operate more than 32,100 kilometres of rail and generate total revenues of approximately
This report by
Companies in this story: (TSX:CP, TSX:CNR)
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