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Kansas City Southern Shares Surge After Canadian National's $33.7 Bln Offer

Shares of Kansas City Southern (KSU) soared 16 percent in pre-market trading Tuesday, after Canadian National Railway Co (CNI,CNR.TO) announced that it has made a superior proposal to buy Kansas City Southern in a cash-and-stock transaction valued at $33.7 billion, including the assumption of about $3.8 billion of KCS debt.

The offer price of $325 per KCS share represents an implied premium of 45% when compared to KCS' unaffected closing stock price on March 19, 2021 and an 21% improvement over the current value of KCS' agreement with Canadian Pacific Railway.

In Tuesday pre-market trading, KSU was trading at $299.18 up $42.78 or 16.68 percent.

As per the terms of the proposal, Kansas City Southern shareholders will receive $200 in cash and 1.059 shares of CN common stock for each KCS common share.

KCS shareholders are expected to own 12% of the combined company. KCS' preferred shareholders will continue to receive $37.50 in cash for each preferred share.

Based on the proposed exchange ratio and CN's current quarterly dividend of C$0.615 per share, KCS shareholders are expected to receive the equivalent of $2.08 in annual dividends per KCS share, an amount that is approximately 40% higher than the pro forma dividend per share under the CP proposal.

In March, Canadian Pacific Railway (CP.TO,CP) agreed to acquire Kansas City Southern in a stock and cash transaction representing an enterprise value of about US$29 billion. The deal included the assumption of US$3.8 billion of outstanding Kansas City Southern or KCS debt. The transaction had valued Kansas City Southern at US$275 per share.

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