Canadian Pacific CEO rules out raising bid for Kansas City rail

Canadian Pacific Railway Ltd (CP.TO) Chief Executive Keith Creel said on Wednesday the company will not raise its bid for U.S. railroad Kansas City Southern (KSU.N), saying bigger rival Canadian National’s (CNR.TO) offer is “not a real deal”.

The two bidding companies are locking horns to take control of a vast network of railways across North America, with Canadian National offering to buy Kansas City Southern in a $33.7 billion deal that trumped Canadian Pacific’s $25 billion bid.

Canadian Pacific had on Tuesday called the opposing offer “illusory and inferior”, flagging its complex nature and saying it would reduce competition and negatively impact shippers.

“I just frankly don’t believe that’s the right value proposition for our shareholders to put our balance sheet at risk, to use all of our capacity in our power to take our ability to respond with shocks to the market,” Creel said in a post-earnings call with investors.

The railroad operator’s first-quarter profit surged 47% and topped estimates, with the company saying its Canadian grain segment brought in “record tonnage, volumes and revenue”, as a recovery in consumption lifted rail freight volumes.

Pandemic disruptions and a surge in demand for retail products have for months led to port congestions and logistical bottlenecks, prompting some goods transporters to turn to rail.

Its operating ratio, a measure of operating expenses as a percentage of revenue and a key metric for Wall Street, rose to 60.2% from 59.2% a year earlier. A lower operating ratio signals improved profitability.

Revenue declined 3.9% while net income rose to C$602 million, or C$4.50 per share, in the first quarter ended March 31, from C$409 million, or C$2.98 per share, a year earlier.

($1 = 1.2495 Canadian dollars)

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