CSX Corporation (NASDAQ:CSX) has gained over 20% in last few trading sessions after a lot of talks about possible M&A plan in the railroad industry. Market is speculating on, if the recent share price jump is justified and how the company’s businesses looking right now.
The share price gain came after Canadian Pacific Railway Limited (USA)(NYSE:CP) CEO Hunter Harrison reported that he would step down in this week, the reason he said was that he wanted to pursue prospects involving other class I railroads. Harrison’s objective is to aim CSX, together with activist shareholder Paul Hilal, who has reportedly generated over $1 billion for that plan.
Harrison has given up several benefits from CP, comprising options worth over $100 million, to get his non-compete provisions waived. The recent steps indicate that Harrison is planning a big deal, and if the expectations are right this vision involves CSX.
CSX has refused Harrison’s takeover proposal before last year, when he, as CEO of CP, proposed $20 billion for company. With CSX’ market valuation standing at around $40 billion right now, the proposal need to be a lot higher compared to what was offered last year, considering a small takeover premium company would cost minimum $45 billion, and the acquirer need to take over nearly $10 billion in debt company is currently holding.
Even with Paul Hilal’s assistance it will be tough to take over CSX with an attractive bid. A complete takeover deal is rather unlikely, which means the shareholders are looking for something else. It may be that Hilal acquires a stake large enough to provide a senior management role to Harrison, and that he would then surge CSX’ value implicitly. If Harrison would certainly do so, the firm’s worth would rise and recent up move in share price could be justified.
In the last trading session, the stock price of CSX gained over 3% to close at $45.99.