© Reuters. FILE PHOTO: A wagon of a freight train of KCS Railway Company is pictured in Toluca
(Reuters) -Canadian National said on Wednesday it had notified the U.S. Surface Transportation Board of its intent to buy Kansas City Southern (NYSE:) after it made an unsolicited $30 billion bid for the U.S. railroad.
Canadian National had informed the STB, which oversees freight rail service and rates in the United States, that it plans to file an application, seeking permission to combine with Kansas City Southern, the company said.
The notice commences a regulatory process should Kansas City Southern accept Canadian National’s offer, it added.
The company’s offer trumps a $25 billion bid made by rival Canadian Pacific (NYSE:) for Kansas City Southern in March.
Canadian Pacific also wrote to the STB on Wednesday, urging the regulator to allow its bid for Kansas City Southern to proceed.
Analysts widely expect Canadian Pacific to raise it offer for Kansas City Southern that is set to heat up a bidding war for the U.S. company.
Separately, credit rating agency DBRS Ltd placed Canadian National’s issuer rating of “A” under review with negative implications following its buyout offer.
The benefits of a deal with Kansas City Southern are not sufficient to compensate for the additional debt needed to fund the transaction, DBRS said.
“The combined entity’s debt-to-EBITDA ratio will be just above 4.5 times while cash flow-to-debt will decline below 20%, levels that are no longer commensurate with the current ratings.”
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