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Is KSU Likely to Accept Canadian Pacific's Takeover Offer?

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In the latest development pertaining to the takeover of the Kansas, MO-based railroad operator Kansas City Southern , Canadian Pacific Railway Limited’s (CP - Free Report) $31-billion offer (inclusive of the $3.8-billion outstanding debt) is likely to be accepted by the former.

We remind investors that on Aug 31, the U.S. Surface Transportation Board (STB) rejected Canadian National’s proposal to set up a voting trust for the acquisition of Kansas City Southern. Following the STB decision, Canadian Pacific (its $31-billion bid was rejected earlier) re-entered the fray. The company informed Kansas City Southern that its offer was still valid through Sep 12. Subsequently, Kansas City Southern’s board, after consulting advisors, decided that Canadian Pacific’s proposal constitutes a "Company Superior Proposal" as defined under the U.S. railroad’s merger agreement with Canadian National Railway Company (CNI - Free Report) .

Kansas City Southern informed Canadian National that it will terminate the deal inked between the two companies, if the latter does not come up with a better offer by Friday. Unlike Canadian National, the STB approved Canadian Pacific’s request for using a voting trust for the same impending acquisition. This development makes it likely for the regulatory authorities to fully approve its offer.

Canadian Pacific’s cash and stock offer, under which each share of Kansas City Southern common stock will be exchanged for 2.884 common shares of the acquirer in addition to $90 in cash, can be accepted by Kansas City Southern within Sep 20. In addition to the above features, Canadian Pacific’s offer entitles the holders of Kansas City Southern’s preferred shares to $37.50 in cash for each preferred share held.

Watch this space for more updates on the hot topic in the railroad space.

Zacks Rank & Key Pick

Kansas City Southern currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the Zacks Transportation-Rail industry is Union Pacific Corporation (UNP - Free Report) , presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Union Pacific have gained 4.5% in a year’s time. 

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