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)Â atmosphere in which cheap money and a rallying stock market make the most wildly impossible transactions seem almost possible.
Source: Thinkstock
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
Essential Tips for Investing: Sponsored
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
