Why CNR (TSX:CNR) Stock Jumped 7% Today!

The tug of war between CNR (TSX:CNR)(NYSE:CNI) stock and CP (TSX:CP)(NYSE:CP) stock continues, but it’s not over yet for investors.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. Amy’s work can be found regularly on the Financial Post and MoneyWise Canada. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog Finley, and travel. Follow Amy on LinkedIn.

Published September 1, 2021 10:01 am EDT

| More on: CNICPCNRCP

Canadian National Railway (TSX:CNR)(NYSE:CNI) jumped 7% Wednesday morning after news came in that the Surface Transportation Board (STB) wouldn’t support its Kansas City Southern (NYSE:KSU) deal. Meanwhile, the support of its rival Canadian Pacific Railway (TSX:CP)(NYSE:CP) fell about 5% from the news.

What happened?

The STB came out against the deal between CNR stock and KSU, as it doesn’t believe it has the voting trust that would see the deal go through. CNR stock had tried to get around some of the regulatory issues raised by the STB by forming this voting trust, offering to payout KSU shareholders before the deal was even approved. The STB further stated that the deal would “raise risks that threaten to undermine the public interests the board considers.”

Meanwhile, Kansas City Southern’s board has recommended the Canadian National deal, stating Wednesday morning it was “disappointed” with the results. The company was set to have shareholders vote on the proposal this week. However, after already having a delay, a further one may be down the line once more. KSU stated it would now have a special stockholder meeting on Friday, Sept. 3, to vote on the US$29 billion deal.

So what?

I know what Motley Fool investors must be thinking. Why did shares jump at news that CNR stock might lose the deal? The reason is simple. An acquisition price of US$29 billion is a lot of money. Shareholders worried that the company might have been overextending itself by purchasing KSU. It’s also the same reason why shares of CP stock fell at the news. Now the company will have to take on a large amount of debt, though less than what the CNR stock deal would have allowed.

But both railways continue to fight for the right to KSU for another main reason. When either makes the deal official, that railway will be the largest in North America. It will stretch from Canada down to Mexico. In the case of CP stock, the railway would be even longer than if CNR stock takes over, as the company overlaps with some areas of KSU. And this is part of the reason why the STB has thumbed its nose at the deal.

Now what?

We wait. It seems quite unlikely that CNR stock and KSU will be able to approve a deal without the support of the STB. But it’s not mandatory. While approval is practically a necessity, it isn’t actually a necessity. This is why KSU wants to have a special meeting, so it can discuss it options to move forward with the more lucrative CNR stock deal.

But it’s looking ever more likely that CP stock will be the winner in this tug of war. That being said, Motley Fool investors could either wait and see what shakes out, or take the opportunity to buy in a pullback. If you’re a long-term investor, it might be a great time to buy CP stock. The next few years may be a bit rocky, but over time, if this stock wins the deal, CP stock is likely to bring in incredible revenue. Stretching across every boarder in North America.