Connect with us

Hi, what are you looking for?

Stock

Canadian Pacific-Kansas City Southern rail deal may boost price competition: analysts

Stock Markets12 minutes ago (Mar 22, 2021 11:00AM ET)

(C) Reuters. FILE PHOTO: A freight train of KCS Railway Company is pictured in Toluca

(Reuters) – Canadian Pacific (NYSE:CP)’s $25 billion deal to buy Kansas City Southern (NYSE:KSU) and create a rail network from Canada to Mexico may increase industry price competition and is thus unlikely to face regulatory roadblocks, analysts said on Monday.

Such a network is likely to offer shippers access to improved service at a lower cost, while potentially undercutting other railroads including Union Pacific (NYSE:UNP), analysts say.

“This is by default negative for the other railroads, including Canadian National which faces a longer haul competitor into the Gulf Coast and Midwest,” J.P.Morgan analyst Brian Ossenbeck said in a research note.

Kansas City shares jumped 16% but were still $15 short of the offer price of $275, a move that analysts attributed to the extended lead-time for the deal, which is not expected to close until the middle of 2022.

Shares of Canadian Pacific fell about 3%, while those of rivals Canadian National and Union Pacific dropped 2% and 3%, respectively.

While it is the biggest M&A deal announced thus far in 2021 and is the largest ever involving two rail companies, it ranks behind the 2010 takeover of BNSF by Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) for $26.4 billion.

“Canadian Pacific and Kansas City don’t compete head to head in specific markets, thus a merger shouldn’t result in fewer rail-service options for shippers in most corridors,” Morningstar analyst Matthew Young said in a research note.

The cash-and-stock offer has an enterprise value (EV) of about $29 billion, implying an 18 times multiple to Kansas City’s 2021 earnings before interest, taxes, depreciation, and amortization (EBITDA) estimate, according to analysts.

That is higher than Kansas City’s current multiple of 14 times, making any competing bids unlikely, Ossenbeck said.

Some of Kansas City’s peers, including CSX Corp (NASDAQ:CSX), Union Pacific and Norfolk Southern (NYSE:NSC), have forward 12-month EV-to-EBITDA multiple of between 13 and 15 times.

Canadian Pacific-Kansas City Southern rail deal may boost price competition: analysts

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like

Uncategorized

Neque porro quisquam est, qui dolorem ipsum quia dolor sit amet, consectetur, adipisci velit, sed quia non numquam eius modi tempora incidunt.

Uncategorized

Nemo enim ipsam voluptatem quia voluptas sit aspernatur aut odit aut fugit, sed quia consequuntur magni dolores eos qui ratione.

Uncategorized

Quis autem vel eum iure reprehenderit qui in ea voluptate velit esse quam nihil molestiae consequatur, vel illum qui dolorem eum.

Uncategorized

Neque porro quisquam est, qui dolorem ipsum quia dolor sit amet, consectetur, adipisci velit, sed quia non numquam eius modi tempora.

Disclaimer: Wisegazette.com it's managers and its employees (collectively "The Company") do not make any guarantee or warranty about what is advertised or above. Information provided by this website is for research purposes only and should not be considered as personalized financial or health advice. Copyright © 2021 Wise Gazette. All Rights Reserved