Capping a three-month attempt to avoid a hostile bidder, the CNW Corporation said today that it would become a private company in a leveraged buyout it valued at $1.6 billion.
CNW, a Chicago-based freight railroad whose principal operating unit is the Chicago and North Western Transportation Company, said it had accepted the bid from a group led by Blackstone Capital Partners L.P., an investment banking company.
Other investors are members of CNW's management - most notably, Robert W. Schmiege, who will remain CNW's chairman and chief executive - Donaldson, Lufkin & Jenrette Inc., and the Union Pacific Corporation.
Blackstone will be the controlling shareholder of CNW, with management and Donaldson, Lufkin holding minority interests. Union Pacific will end up holding preferred stock convertible five years from now into CNW common shares.
All together, the group will pay $50 a share - $45.50 a share in cash and $4.50 a share in preferred stock - for CNW's roughly 19 million common shares outstanding. That amounts to just under a $1 billion total purchase price for the common stock. In addition, the group will assume CNW's $600 million in debt. That brings the group's total acquisition cost to $1.6 billion.
If, as expected, the buyout receives shareholder and regulatory approval, it will mark an end to CNW's three-month attempt to escape the grasp of Japonica Partners L.P., a New York-based investment group formed by two former merger specialists at Goldman, Sachs & Company. Bid by Japonica
In April, Japonica, which owns 8.8 percent of CNW, offered the company $44 a share in cash and preferred stock. CNW's board responded by begining an auction for the company, but on May 12 Japonica went directly to CNW's shareholders with a tender offer.
Although Japonica lost a proxy contest to elect its own slate of directors to CNW's board, it pressed ahead with its tender offer, which was set to expire June 13. But in light of CNW's decision to join forces with the Blackstone group, Japonica said it was terminating its tender offer.
Wall Street analysts were surprised by the $50-a-share purchase price, which they called very rich. CNW stock was trading at about half that price a few months ago. The company's stock rose 75 cents yesterday, to $47.50, in New York Stock Exchange trading. High Price Seen
While CNW's earnings have been recovering, analysts noted that at $50 a share, the Blackstone group would be paying more than 12 times CNW's 1988 earnings per share. Many railroads sell at price-earnings multiples in the single digits.
''I never thought the price would have gotten this high,'' said Mark F. Degenhart of the Argus Research Corporation.
The buying group, however, is convinced it has not overpaid.
Stephen A. Schwarzman, a former top merger executive at Lehman Brothers, who co-founded Blackstone in 1985, said his group looked forward to improving CNW's results by investing heavily in CNW's Omaha-to-Chicago track, a crucial link between Union Pacific's rail system in the West and CNW's main rail system in the Midwest. Mr. Schwarzman said his buying group was also impressed by labor economies recently put into effect at CNW. Blackstone is also a majority owner of Transtar Inc., which operates seven railroads in the Midwest and Pennsylvania. Transtar and CNW will be run as separate entities.
For Union Pacific, the decision to help finance a takeover of CNW is clearly defensive, analysts said. They explained that Union Pacific was dependent on CNW's Omaha-to Chicago track and did not want to see it fall into the hands of a non-railroad corporate raider, like Japonica Partners, which might not have given the track the maintenance it needs.