Kansas City Southern has rejected a roughly $20 billion takeover offer from a group of investors, arguing that the bid undervalues the railroad operator, according to people familiar with the matter. Global Infrastructure Partners and the infrastructure arm of private-equity giant Blackstone Group Inc. had offered Kansas City Southern $208 a share, some of the people said. Kansas City rejected that offer after earlier brushing a bid that was below $200 a share, the people said. The two sides aren’t in discussions.

The most recent offer, which The Wall Street Journal first reported last week without quantifying it, represented a roughly 35% premium to Kansas City Southern’ s share price before the Journal reported that the firms were contemplating a bid back in late July, when the stock was already rising on speculation of a potential takeover.

The rail industry suffered a sharp drop in volumes earlier this year as the pandemic slowed trade and temporarily shut many U.S. stores, but volumes have been steadily returning. Kansas City Southern said at the conference that its volumes, which bottomed out in early May, have returned to pre-pandemic levels. Still, its third-quarter volumes are down 6% to date and revenues are down 14%.

Kansas City Southern is the smallest of the five major freight railroads in the U.S. The company plays a key role in U.S.-Mexico trade, with a network across both countries. Its trains bring autos and other industrial products up from factories south of the border into Texas and the Midwest and haul American farm goods back to Mexico. It also runs a rail link along the Panama Canal.

Like other large railroads in North America, Kansas City Southern is in the midst of implementing a new operating plan that calls for running fewer, longer trains on a tighter schedule. The overhaul will require fewer locomotives and railcars and has boosted the company’s profits and shares.

Todd Horwitz Chief Strategist BubbaTrading.com
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On Saturday September 5th we presented our Hedging Model. Here is the recording from the event: Hedging Presentation Recording