Buyout Funds Bid For Rail Operator -- WSJ
03 September 2020 - 5:02PM
Dow Jones News
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 (September 3, 2020).
A group of buyout investors has made a takeover offer for
railroad operator Kansas City Southern, which has a market value of
more than $18 billion, according to people familiar with the
matter.
Blackstone Group Inc. and Global Infrastructure Partners
submitted the bid after a previous approach was rebuffed, the
people said. It is unclear whether Kansas City Southern will be
receptive this time and details of the offer couldn't be
learned.
Kansas City Southern shares closed up more than 5% Wednesday
after The Wall Street Journal reported the bid, to $193.78. That
gives the Missouri-based company a market value of more than $18
billion.
The Journal reported in late July that the private-equity firms
were contemplating a takeover bid for the railroad. Since then,
Kansas City Southern's stock price has jumped on hopes of a
deal.
Kansas City Southern is working with Morgan Stanley to consider
the bid, some of the 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. But rail executives have
predicted a quick recovery and volumes had been steadily returning
before Hurricane Laura recently swept through many service areas,
prompting delays.
There has been a fair amount of merger activity in the railroad
industry. Brookfield Infrastructure Partners LP and Singapore
sovereign-wealth fund GIC agreed to take railroad operator Genesee
& Wyoming Inc. private for $8.4 billion including debt last
year. Genesee & Wyoming had itself been an active consolidator
of short-line and regional railroads.
Even if Kansas City Southern rebuffs the investors, the bid
could prompt other railroads that have long coveted the company and
its ties to Mexico trade to come out of the woodwork, though deals
in the sector are closely examined by regulators.
Analysts at investment bank Cowen Inc. said in a note last month
that a deal involving a private-equity buyer would likely receive
less scrutiny from the Surface Transportation Board -- the
independent federal agency that reviews railroad mergers -- than a
proposed combination of two operators. Still, they noted that
several railroad operators including Canadian Pacific Railway Ltd.,
Canadian National Railway Co. and Berkshire Hathaway Inc.'s BNSF
Railway Co. could be logical suitors.
Should a deal ultimately come together, it would be one of the
largest U.S. transactions in an otherwise lackluster run for
mergers. Deal activity plummeted in mid-March when the pandemic
brought business activity to a virtual halt, but companies'
appetites for takeovers are beginning to return.
It would also be one of the biggest leveraged buyouts in a
while, possibly surpassing the $18.8 billion deal for Thyssenkrupp
AG's elevator unit that private-equity firms Advent International
and Cinven Ltd. announced in February. It would be the biggest
take-private since Michael Dell and private-equity firm Silver Lake
took Dell Inc. private in 2013.
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
through acquiring transportation and other such assets. Firms
raised a record $97.5 billion for infrastructure investments in
2019, up nearly 70% from 2015, according to data provider Preqin
Ltd.
Write to Cara Lombardo at cara.lombardo@wsj.com and Miriam
Gottfried at Miriam.Gottfried@wsj.com
(END) Dow Jones Newswires
September 03, 2020 02:47 ET (06:47 GMT)
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