Kansas City Southern Agrees to Sell Itself to Canadian Pacific in Roughly $30 Billion Deal
September 15 2021 - 10:50AM
Dow Jones News
By Dave Sebastian
Kansas City Southern has agreed to sell itself to Canadian
Pacific Railway Ltd. in a cash-and-stock transaction that gives it
a roughly $31 billion enterprise value, including $3.8 billion in
debt, after a hotly contested battle for the railroad.
The agreement comes after Kansas City Southern said Canadian
Pacific's offer is superior to the one it had accepted from
Canadian National Railway Co. The deal values Kansas City Southern
at $300 a share, the companies said Wednesday. That represents a
34% premium based on Canadian Pacific's closing price Aug. 9, the
date before Canadian Pacific submitted a revised offer, and Kansas
City Southern's unaffected closing price March 19, the companies
added.
Kansas City Southern shareholders will get 2.884 Canadian
Pacific shares and $90 in cash for each Kansas City Southern share
held. Preferred shareholders will get $37.50 in cash for each
preferred share held, the companies said.
Kansas City Southern shareholders are expected to own 28% of
Canadian Pacific's outstanding common shares, the companies
said.
The companies said they expect the combined entity to generate
about $1 billion in annual savings within three years. They see the
deal adding to Canadian Pacific's adjusted earnings per share in
the first full year after the acquisition.
To fund the stock consideration of the deal, Canadian Pacific
will issue 44.5 million new shares, they said. Canadian Pacific
will fund the cash portion through cash on hand and by raising
about $8.5 billion in debt, for which financing has been committed.
After the closing into a voting trust, Canadian Pacific expects its
outstanding debt to be about $20 billion.
Kansas City Southern emerged as a takeover target roughly a year
ago when a group of buyout investors approached it. The smallest of
the major freight railroads in the U.S., it plays a key role in
U.S.-Mexico trade.
Canadian National's bid suffered a major setback Aug. 31, when
the Surface Transportation Board, a five-member panel that must
bless mergers of freight railroads, ruled the company wouldn't be
permitted to complete a deal using a temporary voting trust that
was a crucial to part of the offer. The STB ruled that Canadian
National hadn't demonstrated the use of a voting trust would be
consistent with the public interest.
Canadian National said Wednesday Kansas City Southern will pay
it a $700 million termination fee and also pay an additional $700
million in reimbursement for that amount which was previously paid
by Canadian National to Kansas City Southern to reimburse a
termination fee paid to Canadian Pacific in May.
Write to Dave Sebastian at dave.sebastian@wsj.com
(END) Dow Jones Newswires
September 15, 2021 10:35 ET (14:35 GMT)
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