A buyout consortium led by Blackstone Group Inc and Global Infrastructure Partners (GIP) has made an offer to acquire U.S. railroad operator Kansas City Southern (KSU), according to people familiar with the matter.

KSU is recovering from what it has called a “horrible” drop in revenues driven by lower cargo volumes during the COVID-19 pandemic. It responded by slashing operating expenses and briefly halting share buybacks.

Details of the bid from the private equity firms could not be learned. KSU is pushing for a higher offer, and there is no certainty a deal will be reached, the sources said, requesting anonymity as the matter is confidential.

Kansas City Southern, which has a market capital over $17 billion, was not immediately available for comment. Blackstone and GIP declined to comment. The Wall Street Journal first reported on the offer on Wednesday. KSU shares ended trading in New York up 5.1% at $193.78.

KSU is the smallest among so-called Class I railways in the United States that account for a significant share of freight traffic. It operates in the central and south central United States and Mexico, and owns a 50% stake in the Panama Canal Railway Company.

While the private equity bid could spur takeover interest in KSU among its larger peers, regulators would heavily scrutinze such a combination. The buyout firms, on the other hand, do not face any antitrust hurdles.

In the second quarter, KSU posted a better than expected profit, helped by a 27% decline in operating expenses, even as its revenue fell 23%.

Were Blackstone and GIP to succeed in their bid for KSU, it would be the latest private equity deal in the sector. In December, Brookfield Infrastructure Partners LP and Singaporean sovereign wealth fund GIC took over short line and regional freight railroad operator Genesee & Wyoming Inc for $8.4 billion, including debt.

Source: Reuters

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