Raymond James analyst Steve Hansen upgraded Canadian National Railway to Outperform from Market Perform with a price target of C$138, up from C$130. Deutsche Bank this morning downgraded Canadian National to Hold from Buy.
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After Canadian National (CNI) announced that it submitted an "enhanced" binding superior proposal and merger agreement to Kansas City Southern (KSU) and Canadian Pacific (CP) responded by stating it will not enter into a bidding war but plans to respond in the allotted time, Stephens analyst Justin Long said determining the outcome of negotiations and the actions of the regulators is "challenging," but he expects a deal with one of the Canadian rails and KCS will be approved. He also continues to think that the Canadian rail that does not merge with Kansas City is likely to pursue a combination with an Eastern rail such as CSX (CSX) or Norfolk Southern (NSC), Long tells investors. The analyst, who feels "more comfortable" owning the U.S. rails at this time, has an Equal Weight rating and $114 price target on Canadian National shares.
Canadian National (CNI) announced that following the completion of confirmatory due diligence, it submitted an "enhanced" binding superior proposal and merger agreement to the Kansas City Southern (KSU) Board of Directors. The KCS Board has determined CN's proposal to be a "company Superior Proposal" and has announced its intention to terminate the previously executed March 21, 2021 merger agreement with Canadian Pacific Railway Limited (CP), CN said. CN looks forward to promptly entering into a definitive merger agreement with KCS to create the premier railway for the 21st century, it said. CN's proposal offers KCS shareholders $325 per common share based on yesterday's closing price of CN shares, which implies a total enterprise value of $33.6B, including the assumption of approximately $3.8B of KCS debt. Under the terms of CN's revised proposal, KCS shareholders will receive $200 in cash and 1.129 shares of CN common stock for each KCS common share, with KCS shareholders expected to own 12.6% of the combined company. This represents an implied premium of 45% when compared to KCS' unaffected closing stock price on March 19, 2021. KCS' preferred shareholders will continue to receive $37.50 in cash for each preferred share. Under the terms of the revised proposal, a wholly owned subsidiary of CN has also agreed to reimburse $700M to KCS in connection with their payment of the termination fee to CP under the merger agreement with CP. "We are delighted that KCS has deemed CN's binding proposal superior, recognizing the many compelling benefits of our combination and expressing confidence in CN's ability to obtain the necessary approvals and successfully close the transaction. Our proposal offers a clear path to completion and is structured in a way that gives KCS shareholders both greater immediate value and the opportunity to participate in the future upside of the combined company," said CN CEO JJ Ruest. "Together, CN and KCS will seamlessly connect ports and rails in the United States, Mexico and Canada by providing superior service, enhanced competition and new market access to move goods across North America safely and efficiently. We are encouraged by the widespread support we have received for the transaction thus far and will continue to work closely with KCS and all relevant stakeholders to fully realize the benefits and opportunities available through a combined CN-KCS."