A group of big buyout investors is thinking about a takeover bid for railroad operator
that might be worth more than $21 billion and mark a huge bet on U.S.-Mexico trade.
Blackstone Group Inc.’s
infrastructure arm and International Infrastructure Partners are together checking out a possible deal and speaking with banks including.
Citigroup Inc.
about financing, according to individuals familiar with the matter.
There is no assurance they will continue with an official deal or that Kansas City Southern would be responsive. Assembling the roughly $15 billion equity check that might be needed for an offer of that size would present substantial obstacles for Blackstone and GIP, which are investing out of $14 billion and $22 billion facilities funds, respectively.
If there is an offer, it would be significant. Kansas City Southern had a market value of roughly $14 billion Friday afternoon and consisting of debt, the worth of a quote could go beyond $21 billion, a few of individuals said.
The bid being talked about would likely include about $6.5 billion worth of financial obligation funding, these individuals said.
Kansas City Southern is the smallest of the five major freight railroads in the U.S. The business plays a key role in U.S.-Mexico trade with a network across both nations. Its trains bring automobiles and other commercial items up from factories south of the border into Texas and the Midwest and carry American farm products back to Mexico. It also runs a rail link along the Panama Canal.
Like other big railways in The United States and Canada, Kansas City Southern is in the midst of executing a brand-new operating strategy that requires running fewer, longer trains on a tighter schedule. The overhaul will need fewer engines and railcars and has improved the company’s revenues and shares.
The rail market suffered a sharp drop in volumes this year as the coronavirus pandemic upended the international economy, slowed trade and briefly shut many U.S. shops. Kansas City Southern reported its second-quarter income fell 23%from a year earlier. In recent earnings calls, rail CEOs have actually anticipated a sharp healing in cargoes even as the pandemic continues to spread out in parts of the country.
Kansas City Southern has drawn in attention from buyout companies because.
Brookfield Facilities Partners
LP and Singapore sovereign-wealth fund GIC accepted take Genesee & Wyoming Inc. private for $8.4 billion consisting of debt in 2015. Genesee & Wyoming had itself been an active consolidator of short-line and local railways.
With rates of interest at historic lows, organizations such as pension funds and sovereign-wealth funds have poured money into infrastructure-investment cars. They tend to employ less debt and frequently attain lower rates of return than standard buyouts. Companies raised a record $975 billion for infrastructure investments in 2019, up almost 70%from 2015, according to Preqin.
Blackstone, which released Blackstone Facilities Partners in 2017 after getting a matching dedication of up to $20 billion from Saudi Arabia’s Public Investment Fund, said last summer it had raised $14 billion for the strategy. Its fund is open-ended, meaning it can continue to raise capital with time, and might eventually be as huge as $40 billion.
Up until now, the private-equity giant, which has a total of $564 billion in possessions, has actually invested $2.8 billion via the platform. In December, it reached an offer to buy midstream oil-and-gas pipeline operator Tallgrass Energy LP for about $4 billion.
With $69 billion in possessions and offices around the world, GIP is among the world’s biggest infrastructure investors. Its existing $22 billion fund set a record for size when it was announced in 2015.
In June, the company joined Brookfield and others in a $10 billion financial investment in gas pipelines run by Abu Dhabi National Oil Co.
— Paul Ziobro contributed to this article.
Compose to Cara Lombardo at cara.lombardo@wsj.com and Miriam Gottfried at Miriam.Gottfried@wsj.com
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