Topic: Dividend Stocks

CANADIAN PACIFIC RAILWAY LTD. $175 – Toronto symbol CP

CANADIAN PACIFIC RAILWAY LTD. $175 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 152.9 million; Market cap: $26.8 billion; Price-to-sales ratio: 3.9; Dividend yield: 0.8%; TSINetwork Rating: Above Average; www.cpr.ca) has revised its takeover offer for U.S.-based railway Norfolk Southern Corp. (New York symbol NSC).

The combined firm would be North America’s largest railway, with more than 56,000 kilometres of track. Buying Norfolk would also give CP greater access to ports on the U.S. Gulf Coast and Atlantic Ocean.

Under the new deal, Norfolk shareholders would receive more stock and less cash: $32.86 U.S. a share in cash plus 0.451 of a CP share. That would give them 47% of the combined company, compared to 41% under the original offer.

Based on CP’s share price, the new offer is worth $27.2 billion U.S. CP feels it can cut the combined firm’s annual costs by $1.8 billion U.S.

Norfolk is trading at 3.8% below the value of CP’s offer, which indicates that investors feel competition regulators will probably block the deal.

The company has also structured its new offer so that a voting trust would hold the Norfolk shares. That would let Norfolk investors receive their cash and shares as early as May 2016. However, if regulators do not approve the merger, CP may have to sell the Norfolk shares at a lower price.

CP Rail is still a buy.

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