Transportation
Canadian Pacific and CSX: Another Mega Merger Easy to Fund
Published:
Canadian Pacific Railway Ltd. (NYSE: CP) approached CSX Corp. (NYSE: CSX) about a merger or takeover, depending how a deal might be structured. According to Bloomberg, the U.S. company turned down the offer. However, transaction or not, CSX is worth $30 billion based on market cap, and in a sale might go for $40 billion as a buyout premium. Yet, the deal seems pedestrian in a merger and acquisition (M&A) atmosphere in which cheap money and a rallying stock market make the most wildly impossible transactions seem almost possible.
Unlike some valuations that have floated around the market, at least CSX has substantial revenue. Last year, sales reached $12 billion and net income $1.9 billion. Canadian Pacific Railway may claim that “synergies” will make a transaction more attractive, which is to say that people and perhaps routes can be eliminated. The value of cost cuts would be accelerated by a turnaround in the industry made possible by energy shipments, much of it coal and crude oil or crude by-products.
The stock market is so fat with investors that even companies that are barely companies have massive market values. Twitter Inc. (NYSE: TWTR) is worth $31 billion, with nearly no revenue at all. However, Wall Street believes the social media network has potential to grow. Even at a white-hot revenue growth pace, it would take years for Twitter to become as large as CSX. With an unproven business model, Twitter may not even get close.
The valuation issue and the ease with which companies can get, have and will spend money is illustrated by a recent comment by editors at CNET. They pointed out that M&A activity in the tech market could hit $500 billion, which might top the figure set in the frothy market of 2000. The tech medium’s primary example is the Facebook Inc. (NASDAQ: FB) buyout of WhatsApp for $19 billion. WhatsApp has about 500 million visitors, but no revenue of any size to show for that colossal price.
In the present M&A atmosphere, a CSX buyout is relatively small.
ALSO READ: America’s 50 Best Cities to Live
Want to Retire Early? Start Here (Sponsor)
Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?
Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.
Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
