Kansas City Southern a Takeover Target?

This might be a reach, but it is on Bloomberg.

Could KCS end up like ConRail; carved up due to anti-trust? Could one of the Canadians buy it?

Bloomberg.com[/b]

Kansas City Southern on Track for Takeover: Real M&A

...The railroad is poised to boost sales by 48 percent through 2016, faster than every peer for whom estimates are available, according to data compiled by Bloomberg. The increase is being fueled by the $13 billion company’s operations in Mexico --where the economy is expanding at almost twice the U.S. rate --and booming American oil production that’s already sent crude shipments by rail to a record.

Kansas City Southern’s growth prospects may lure suitors even though it trades for the highest multiple to profit among peers, according to Hodges Capital Management Inc., which sees Union Pacific Corp. (UNP) as a potential acquirer. Desjardins Group said Canadian National Railway Co. and Canadian Pacific Railway Ltd. (CP) are the most logical buyers, while FBR & Co. says Berkshire Hathaway Inc. (BRK/A)’s BNSF Railway could be better positioned to buy the Kansas City, Missouri-based company.

...

A renaissance in U.S. energy production is also helping railroads such as Kansas City Southern. U.S. rail shipments of crude oil rose to a record 233,811 carloads last year, according to the Association of American Railroads. Kansas City Southern benefits by serving Port Arthur, Texas, home to refineries run by Motiva Enterprises LLC and Valero Energy Corp.

...

The two biggest western U.S. railroads, Union Pacific and BNSF, the railroad unit of Warren Buffett’s Berkshire Hathaway, could make sense as buyers because their networks match up well with the smaller carrier’s system, and they would find its Mexican operations attractive, Marshall said.

...

Somehow, Mr. Smith, I think the markets think "some-thing's up". KSU is up through May 31, 32.6% (S&P 14.3).

KCS will end up with Canadian Pacific likely in the same time frame as does BNSF-CSX and UP-NS (or v.v.). KCS-CP would be THE NAFTA road, that would not only benefit from increased manufacturing in Northern Mexico (Monterrey) but also should West Coast Mexican ports be developed. The "draw" would be lower port costs, for "Cargador Jose" hauls in a "mite bit less" for his labors than does "Longshoreman Joe".

But of course, all of this depends upon political stability "South of the Border", and evidently the markets believe such will be the case. Watch there be anarchy down there with the various Drug Lords playing "king of the castle' and "something will be nosediving South".

disclaimer: author holds long position KSU

Harrison also sought to dismiss speculation that Calgary-based Canadian Pacific, the country’s second-largest railroad, would be interested in buying Kansas City Southern. (KSU) Benoit Poirier, an analyst at Desjardins Capital Markets in Montreal, wrote in a May 14 note to clients that Canadian Pacific and its larger rival, Canadian National Railway Co. (CNR), are “well positioned” to buy Kansas City Southern.

Old Story

“I don’t necessarily agree with the report that came out of Canada last week that one of us thought about the KCS,” Harrison said, referring to Kansas City Southern. “That story is worn out. That story I’ve been hearing for 15 years.”

Canadian Pacific isn’t in a position to consider buying a larger competitor because it lacks the financial resources to do so, the CEO said. Canadian Pacific’s operating ratio, an industry gauge of efficiency that compares expenses to revenue, was 83.3 percent last year, exceeding the 71.7 percent average of North America’s largest carriers, according to data compiled by Bloomberg.