With transportation deals, as in life, it’s not the destination but the journey. Canadian Pacific Railway’s plan to close its $27 billion merger with Kansas City Southern has gotten fresh pushback after more than a year in limbo. And shareholders in JetBlue Airways’ tie-up with Spirit Airlines may be stuck in a similar layover. Painful concessions may be involved. But with deals in quasi-monopolistic industries, the key is seeing deals through.
Register now for FREE unlimited access to Reuters.comCP had planned for some hiccups. To gain approval from shareholders, the company closed the merger financially before it could do so operationally by putting shares in a trust. That would need to be unwound in the event regulators didn’t give their blessing.
Still, squeezing every bit of value out of the transaction is important. KCS' share price had risen more than 80% over several months last year after private equity firm Blackstone made an overture. KCS’ enterprise value-to-sales multiple was almost a quarter higher than bidders' valuations at the time.
Now the risk is that JetBlue's plan for Spirit could require raising ticket prices, effectively eliminating an ultra-low-cost carrier in some markets. That could upset regulators. JetBlue paid top dollar, too, offering significantly more than Frontier. On top of that, it has agreed to pay some cash upfront, plus a fee that ticks up as time goes on if the deal doesn’t close.
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