Canadian National Railway Co T.CNR

CNR-KSU

[autofocus111]

Here's the thing. If KSU agrees to CNR's offer and pays out KSU shareholders on a positive vote by KSU shareholders, the KSU company will then be held in a trust until a regulatory decision is made by the STB. If the deal is eventually approved, fantastic. If it isn't, then CNR will not be able to merge operations and achieve the synergies. Instead, stuck with KSU as a separate entity, they will be forced to sell KSU back into the open market, and guess what, it won't be at the premium CNR paid.

So in the near term (until KSU votes to approve and shareholders are paid out), there will be arbitrage that suppresses CNR stock price ie. long KSU short CNR.

Then longer term, the pending STB decision to approve/reject will act as an overhang on CNR's stock price. If STB rejects the merger, expect CNR to price in the loss of the premium paid for SKU and a negative impact to CNR stock price.

If approved, then the overhang will be gone, and the focus will turn to integration execution/risk until the synergy benefits are captured and proven out. That may take many months to achieve, and positive results are likely but not guaranteed. The stock will track progress (or lack of it).

No matter how you slice it, this deal means there's reduced potential for upside except in the very long term, and quite possibly small/large downside for CNR for the next year or longer depending on the STB review outcome.

CNR felt they couldn't allow CP to create a network that more directly competes with their own, and consequently had to make this move. But given the premium price of this action, CNR shareholder returns could lag others in the sector for many months to come, even if long-term the payoff could be very nice. Don't buy unless you have confidence in the merger and management's ability to fully capture the synergies, and are ready to hold for at least 5 years.

[Justhalffull]

You speak as if that risk only applies to CN.  CP’s offer includes the exact same in trust hold pending STB approval.  Most industry observers feel the STB approval will occur, as KCS is not that large, with revenue around 20% of CN' s annual revenue.  As for competition, there would be little negative impact as the two railroads operate for the mostpart on the opposite sides of

[autofocus111]

It's the CNR message board so that's the perspective I was looking at this from. The same analysis absolutely applies to CP as well. I'd add that if CP wins the battle, that will be a new added competitive pressure on CNR. Long term the best outcome for CNR shareholders will be if they prevail in their bid and the STB subsequently approves the acquisition (assuming CNR can execute well

[Justhalffull]

I think CN's track record on integrations speak for itself.  They have proven to be extremely competent, having gone though at least 5 mergers/ acquisitions in the past   Since their merger with the IC in 1998, they have merged, taken over or purchased the Great Lakes transportation (ACR railway and marine and a couple of smaller US railways) the Wisconsin a central in 2001, BC Rail

[Justhalffull]

You speak as if that risk only applies to CN. @CP@s offer includes the exact same in trust hold pending STB approval. @Most industry observers feel the STB approval will occur, as KCS is not that large, with revenue around 20% of CN@ s annual revenue. @As for competition, there would be little negative impact as the two railroads operate for the mostpart on the opposite sides of the Mississippi

[ghostzapper]

autofocus143.  IMO your commentary is spot on.  The business case for proceeding with the transaction is solid, however, the many market players will be slicing and dicing this from many, many angles and that means performance will most likely lag. 

[peter75]

 i bought shares at 137 thinking it was a great entry point probably is long term Havent owned this in years I bought because its land corridor is so under valued This is a pipeline

[autofocus111]

I\ve got a full position so I won't be adding unless this drops into the low 120's on further developments. The only way the stock recovers from here is KSU decides not to recommend approval of the CNR offer, or if CP emerges with a higher/winning bid. Both are looking more and more unlikely with each passing week.

[autofocus111]

ghost Thanks. The icing on the cake is that CNR put share buybacks on hold after the announcement they would seek to acquire KSU. So they won't be taking advantage of any drops in the share price either. I can see the stock rangebound for months in the 120-140 range if KSU agrees to the buyout, unless CP reverses course and steps up with a higher bid (something their CEO dismissed). If CNR