Santa Fe Takeover Battle Builds Up Steam : Railroads: Burlington Northern agrees to raise its bid to eclipse rival offer from Union Pacific. UP says it’s willing to top that.
Burlington Northern stepped up its pursuit of the Santa Fe railroad Thursday by agreeing to raise its bid for Santa Fe Pacific Corp. to nearly $3.2 billion, eclipsing a hostile rival offer from Union Pacific Corp.
But a Union Pacific spokesman immediately said his company is willing to negotiate a “superior” bid to the new Burlington proposal.
The spokesman, Gary Schuster, declined to elaborate. But industry observers are watching to see if Union Pacific’s board raises the stakes still higher at its regularly scheduled meeting today.
“The ball is definitely in UP’s court,” said Scott Flower, an analyst at Kidder, Peabody & Co.
Burlington and Santa Fe said their sweetened pact calls for Burlington to exchange 0.34 of its shares for every share of Santa Fe common stock. The exchange ratio was originally 0.27 per share.
Based on Thursday’s closing prices, the swap is valued at $17 per Santa Fe share, or a total of $3.18 billion. Union Pacific has offered to exchange 0.344 share of its stock, valued Thursday at $16.73 per Santa Fe share, or $3.13 billion.
A Burlington-Santa Fe marriage would create the nation’s largest railroad, with 33,000 miles of track. Santa Fe, based in Schaumburg, Ill., also would provide Burlington with a significant presence in California. Burlington, based in Ft. Worth, Tex., is a major shipper of coal and grain across the Great Plains.
Burlington’s revised offer for Santa Fe was not unexpected. In light of Union Pacific’s bid, major Santa Fe investors had been pressing Burlington to raise its price before Burlington’s and Santa Fe’s shareholders vote on the deal Nov. 18.
Wall Street’s expectation of a higher Burlington offer also was evident recently in Santa Fe’s stock price, which had traded above the value of Burlington’s original offer announced June 30.
Burlington agreed to lift its offer after delving further into Santa Fe’s business and concluding that the potential increase in the combined companies’ profits is higher than originally thought, Burlington spokesman Richard Russack said. “There was more value there,” he said.
Now the pressure is on Union Pacific, a Bethlehem, Pa.-based railroad whose routes also stretch through California, the Midwest and the Pacific Northwest.
Not only has Burlington matched Union Pacific’s offer, but Burlington also is thought by many analysts to have a much better chance of getting approval from the Interstate Commerce Commission. Santa Fe’s board, in fact, rejected Union Pacific’s offer largely on grounds that it would not get ICC clearance.
With those two advantages, Burlington “has UP in a tough place,” Flower said.
Union Pacific maintains that its offer can clear antitrust scrutiny. The company on Wednesday released a report by a five-member “panel of experts” that, not surprisingly, concluded that a Union Pacific-Santa Fe merger “should have good prospects of obtaining ICC approval.”
In New York Stock Exchange composite trading, Santa Fe rose $1.125 to $15.25 a share; Union Pacific fell 87.5 cents to $48.625, and Burlington lost 50 cents to $50 a share.
