Why Shares Of Kansas City Southern Are Up By 12% Today?

Kansas City Southern Video 22.03.21.

Canadian Pacific Acquires Kansas City Southern In A Deal Worth $29 Billion

Shares of Kansas City Southern started the day with a big gap up after Canadian Pacific announced that it would acquire Kansas City Southern in a stock and cash transaction representing an enterprise value of approximately $29 billion.

This transaction values Kansas City Southern at $275 per share based on the closing prices of both stocks on March 19, 2021. Current shareholders of Kansas City Southern will get 0.489 of Canadian Pacific share and $90 in cash for each Kansas City Southern share they own. As usual, the deal will have to be approved by regulators and shareholders.

According to Canadian Pacific’s press release, the deal will expand options and efficiences for customers while creating value for companies’ shareholders.

The stock consideration part of deal will be financed by an equity offering of 44.5 million shares of Canadian Pacific, while the cash offer will be funded by cash on hand and $8.6 billion of debt. Canadian Pacific expects that the transaction will be accretive to its adjusted duluted earnings per share in the first full year after it acquires control of Kansas City Southern.

What’s Next For Kansas City Southern?

Shares of Canadian Pacific found themselves under pressure after the announcement as the market got a bit worried about dilution and additional debt. Currently, Canadian Pacific stock is down by about 4%.

Not surprisingly, shares of Kansas City Southern have also pulled back from session’s highs as the company’s shareholders will get 0.489 shares of Canadian Pacific for each share of Kansas City Southern they own in addition to $90 in cash.

At current prices, shareholders of Kansas City Southern are expected to get about $268 per share while the market price of the company’s stock is about $251 per share. This situation can attract traders who are willing to bet that the deal would be approved by shareholders and regulators, although it should be noted that market’s evaluation of Canadian Pacific will continue to play a major role in the potential success of such trades.

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