Canadian Pacific Railway Ltd share price down, makes an offer to merge with CSX Corp

Last week Canadian Pacific Railway Ltd approached CSX Corp with a merger proposal to create a transcontinental carrier.

People familiar with the matter said that the offer was quickly rejected and it is not clear whether Canadian Pacific will return with an improved bid. Combined, the two companies would be worth more that $60 billion.

Martin Cej, a spokesman for Canadian Pacific and Melanie Cost, a spokeswoman for CSX, said that their companies do not comment on rumors.

When asked about his opinion on the matter, Keith Schoonmaker, an analyst with Morningstar Inc., said for Bloomberg: “Why CSX? I think valuation is attractive, more attractive than at other railroads. CSX has really been punished by the market because of its very high exposure to coal”. He also added “Who accepts the first offer? We don’t know what kind of negotiations have already taken place but I don’t think Michael Ward and his board are fools when it comes to negotiating.”

Canadian Pacific has mentioned before that it is interested in acquisitions. On a call with analysts, CPs CEO said: “Would we ever consider anything? As Ive said publicly before, sure. But you got to have somebody to dance with and I dont know anybody that wants to dance now.” Later on a television interview for Bloomberg he also mentioned that “any east-west combination” would be possible.

Harrison joined Canadian Pacific in 2012. Before that he was CEO of Canadian National Railway, which in 2000 tried to merge with Burlington National, another top tier railway carrier. The deal, however, did not receive approval by the U.S. Surface Transportation Board due to competition concerns.

Independent railroad analyst Anthony Hatch said that even if CSX approved the deal, it would face fierce regulatory scrutiny and that if it secures approval, it would be “with such strings attached that they would feel like anchor chains.”

Canadian Pacific is the second biggest railway by revenue in its country and has a market value of $32 billion, while CSX is number three in the US and is worth $30 billion. CSX suffered a small decline of 79 cents on Friday to $29.94, but is up 14.84% year-on-year.

Canadian Pacific Railway Ltd fell by 4.69% on Friday and closed at CAD 212.20 in Toronto, with a day high at CAD222.15 and low of CAD 202.39. The company is valued at CAD 36.38 billion. According to the Financial Times, the 26 analysts offering 12-month price targets for Canadian Pacific Railway Ltd have a median target of CAD 238.50, with a high estimate of CAD 285.00 and a low estimate of CAD 84.00. The median estimate represents a 12.39% increase from the last price of CAD 212.20.