KSU Rumors Redux/Quick Thoughts

Coal Train

Greetings on the “weekend” (that’s the antiquated term for the time period between roughly 5 pm Friday and 8 am Monday);

So much for Berkshire/BNSF reporting today (thanks, WSJ!)

So the WSJ reports that KSU might soon get a team offer from major infrastructure firms – supposedly Blackstone and Global Infrastructure Partners-backed by Citigroup to take it private (Thanks, WSJ?).  My initial thoughts (and see Tweet):

It is certainly possible; certainly, it is a very large deal (KSU’s market cap was ~$14B before the 10% weekend run-up) but PE/Infra firms certainly also have teamed up before (in our/my world, for example, see the buyout of Australia’s Asciano/Pacific National).  Infrastructure firms have some real advantages: 1) a very cheap cost of money and 2) very long term investment horizons/combined with reasonable return expectations -  so in many ways rails fit well (and their solid performance in the pandemic so far actually proves out one thing that rails provide that infra funds want - stability)

Also – such a move would take the Quarter-to-Quarter routine out of the rails - the classic "managing to Wall St" blahblahblah BS we hear so much about - a la BNSF. But while that issue needs to be watched, (and the mix of the big publicly-traded rail investors includes a short term oriented shareholders – along with medium and long term funds) in the fullness of time the RRs have actually rewarded long term investors (best evidence - their huge annual cape spend and their improving ROICs). And it’s not like KSU is suffering - KSU has been rewarded in the marketplace (note their multiple). When Brookfield (et al) bought GWR, they solved a problem – how to grow by acquisition while competing with other infra funds.  What problem needs to be solved, from KSU’s standpoint?  From their perspective, there is no need to do this. But if they get an offer that rewards their shareholders (at a price commensurate to their post-C19/post trade war expectations for performance - that's a big # !!)then they have the fiduciary duty to accept. If not, well, these funds cannot go hostile, so it will be just another day, another rumor.

KSU of course, subject to rumors since the 1990s, doesn’t comment (and in this case has been radio silent to me).  After all, it is a “weekend”….

 

Anthony B. Hatch 
abh consulting
http://www.abhatchconsulting.com
abh18@mindspring.com \
Twitter @ABHatch18