Buyout Firms Discuss Bid For Kansas City Southern -- WSJ
By Cara Lombardo and Miriam Gottfried
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 1, 2020).
A group of big buyout investors is considering a takeover bid
for railroad operator Kansas City Southern that could be worth more
than $21 billion and mark a big bet on U.S.-Mexico trade.
Blackstone Group Inc.'s infrastructure arm and Global
Infrastructure Partners are together exploring a potential deal and
speaking to banks including Citigroup Inc. about financing,
according to people familiar with the matter.
There is no guarantee they will proceed with a formal offer or
that Kansas City Southern would be receptive. Assembling the
roughly $15 billion equity check that could be required for a deal
of that size would pose significant hurdles for Blackstone and GIP,
which are investing out of $14 billion and $22 billion
infrastructure funds, respectively.
If there is a deal, it would be significant. Kansas City
Southern had a market value of roughly $14 billion Friday afternoon
and including debt, the value of a bid could exceed $21 billion,
some of the people said.
The bid being discussed would likely include about $6.5 billion
worth of debt financing, these people said.
Kansas City Southern is the smallest of the five major freight
railroads in the U.S. The company plays a key role in U.S.-Mexico
trade with a network across both countries. Its trains bring autos
and other industrial products up from factories south of the border
into Texas and the Midwest and haul American farm goods back to
Mexico. It also runs a rail link along the Panama Canal.
Like other large railroads in North America, Kansas City
Southern is in the midst of implementing a new operating plan that
calls for running fewer, longer trains on a tighter schedule. The
overhaul will require fewer locomotives and railcars and has
boosted the company's profits and shares.
The rail industry suffered a sharp drop in volumes this year as
the coronavirus pandemic upended the global economy, slowed trade
and temporarily shut many U.S. stores. Kansas City Southern
reported its second-quarter revenue fell 23% from a year ago. But
in recent earnings calls, rail CEOs have predicted a sharp recovery
in cargoes even as the pandemic continues to spread in parts of the
Kansas City Southern has attracted attention from buyout firms
since Brookfield Infrastructure Partners LP and Singapore
sovereign-wealth fund GIC agreed to take Genesee & Wyoming Inc.
private for $8.4 billion including debt last year. Genesee &
Wyoming had itself been an active consolidator of short-line and
With interest rates at historic lows, institutions such as
pension funds and sovereign-wealth funds have poured money into
infrastructure-investment vehicles. They tend to employ less debt
and often achieve lower rates of return than traditional buyouts.
Firms raised a record $97.5 billion for infrastructure investments
in 2019, up nearly 70% from 2015, according to Preqin.
Blackstone, which launched Blackstone Infrastructure Partners in
2017 after receiving a matching commitment of up to $20 billion
from Saudi Arabia's Public Investment Fund, said last summer it had
raised $14 billion for the strategy. Its fund is open-ended,
meaning it can continue to raise capital over time, and could
eventually be as big as $40 billion.
So far, the private-equity giant, which has a total of $564
billion in assets, has invested $2.8 billion via the platform. In
December, it reached a deal to buy midstream oil-and-gas pipeline
operator Tallgrass Energy LP for about $4 billion.
With $69 billion in assets and offices around the globe, GIP is
one of the world's largest infrastructure investors. Its current
$22 billion fund set a record for size when it was announced last
In June, the firm joined Brookfield and others in a $10 billion
investment in gas pipelines operated by Abu Dhabi National Oil
--Paul Ziobro contributed to this article.
Write to Cara Lombardo at firstname.lastname@example.org and Miriam
Gottfried at Miriam.Gottfried@wsj.com
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