mardi 20 avril 2021

The battle for Kansas City Southern

There's a battle for a railroad named Kansas City Southern (KSU) between the two canadian railroads: CP and CNR.

First, CP offered 25 billion dollars (about 275 USD a share) 

Today, CNR offers more than 30 billion dollars, via a combination of cash and CNR stock (about 325 USD a share). 

First, I thought that CNR would overpay, but after a quick look at KSU, it looks like that business is interesting. Not as good as CNR and CP, but not bad either. 

KSU numbers

Forward PE (after CNR bid): 24

Profit margin: 24%

ROE: 13

Debt level: medium-high

Annual EPS growth last 5 years: 9%

Estimated annual EPS growth next 5 years: 15%

Free cash flows: Growing nicely every year since 2015

Kansas City Southern

Kansas City is not as well managed as CP or CNR, but that's probably the key of that acquisition. These two great operators would probably improve a lot KSU by buying it. And the successful buyer will own a very large territory. That's more strategic than most acquisitons in other sectors. Because if you control roads, you're very powerful. More powerful than if you buy another company in a sector full of competition.

Imagine that, you already control a vast portion of railroads in North America, and now, you can control the midwest of the states and the eastern part of Mexico!

I think that it's a very exciting acquisition.

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