$578-Million Deal : CNW Accepts Sweetened Takeover Bid
CNW Corp., the sprawling Midwestern railroad that has been the subject of takeover speculation for much of the past year, said Tuesday that it accepted a sweetened $578-million takeover offer from an investment group.
The deal is one of the first big acquisitions since last month’s stock market collapse. But the $31-per-share price was well below industry analysts’ estimates last summer that put CNW’s value at more than $50 a share.
The group buying CNW is led by Gibbons, Green, van Amerongen Ltd., an investment banking firm that specializes in management buyouts. It had offered $559 million, or $30 a share, earlier this month.
CNW’s stock, which fell sharply during the market crash, rose 75 cents to $24.75 in New York Stock Exchange trading Tuesday.
The Chicago-based company said a senior management group led by its chairman, James R. Wolfe, will participate with Gibbons Green as investors in the buyout.
In August, CNW said it was talking with several potential buyers, but no deal was announced.
Investors have been attracted by the belief that CNW’s 6,500 miles of rail lines and other assets would be worth more broken up and sold than as a single entity. In June, a Pittsburgh-based investor group, L. B. Foster Co., paid $58 million for 320 miles of CNW railroad and rail facilities.
CNW earned $43 million on revenue of $959.5 million in 1986.
Gibbons Green, which has offices in Los Angeles and New York, has initiated more than $2 billion in leveraged buyouts during the past two years. In early October, it announced a deal to acquire Argonaut Group Inc., a Los Angeles-based workers’ compensation insurer, for $620 million.
But that buyout has run into financing obstacles since the Wall Street collapse, and analysts said Tuesday that the tepid reaction of investors to the CNW agreement might indicate doubts about Gibbons Green’s ability to finance another big acquisition.
“In the current environment, the stock may be selling at such a big discount to the offer price because some people are worried Gibbons Green may pull out of the deal,” said Jeff Perry of C. J. Lawrence & Co. However, Perry added that he believed “the fear may be overdone.”
Analysts speculated that the investment group could help pay for the buyout by selling Douglas Dynamics Inc., a maker of medium-sized snowplows that CNW acquired last year for $52.6 million.
The company is also expected to continue its program of selling off short-line segments to reduce labor costs.
