North America - Wall Street is expecting CP to raise its offer for KCS even at the cost of more debt to win the bidding war with larger Canadian railroad rival CN.
 
In the latest twist to the takeover saga, the U.S. railroad operator on Thursday accepted CN's $33.6 billion offer, leaving CP just five business days to make a new offer.
 
Analysts said CP was unlikely to let go a chance to be the first railway spanning the United States, Mexico, and Canada easily even though it had said it would not leverage its books to outbid CN.
 
"If CP is willing to compromise a bit more on the leverage ratio, it could match or potentially beat CN's latest offer," Scotiabank analyst Konark Gupta wrote in a note.
 
It all started in March when CP agreed to buy KCS in a $25 billion cash-and-stock deal, but CN topped the offer in April.
 
CP's shares have added about 3 percent since its 21 Mar 2021 offer, while CN has fallen about 9 percent from its 20 Apr 2021 bid.
 
This gives CP room to cut down the size of any potential debt that it would need to outbid its rival.
 
As of Thursday's close, the implied value of its offer rose to $286 per share from $275 per share, according to Gupta.
 
That is just $39 per share below CN's offer of $325 per share.
 
To match it, CP would need to stretch its leverage ratio to as much as five times, from about four times currently.
 
It had a long-term debt of about $8 billion as of 31 Mar 2021, while it was $13 billion for CN.
 
A final outcome for either combination would still hinge on a regulatory approval by the U.S. Surface Transportation Board (STB), which oversees freight rail.
 
"The true power in this saga remains where it always has been, with the STB," Cowen analyst Jason Seidl wrote in a note.
 
Shares of KCS were down 1 percent and CN 3.5 percent, while CP was up about 1 percent in early trading on Friday.
 
Ankit Ajmera.