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Canadian Pacific sets KCS merger deadline, applauds STB decision

By Bill Stephens | September 1, 2021

CP’s Aug. 10 merger offer to KCS still stands

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Logos for Canadian National, Canadian Pacific, and Kansas City Southern

CALGARY, Alberta – Canadian Pacific CEO Keith Creel says Tuesday’s Surface Transportation Board decision that rules out a Canadian National-Kansas City Southern merger proves what he’s been saying all along.

“The ruling … confirms what we’ve always believed to be true. And I’ll use their words: A CP-KCS combination is substantially different, substantially different. Those are key words. It is an end-to-end merger, whereas the CN system overlaps that of the KCS,” Creel told investors and analysts on a Wednesday morning conference call.

CP also has a certain path to regulatory approval for a KCS merger, Creel says, noting that the combination already received voting trust approval and would be judged under the STB’s less onerous pre-2001 rules.

CP’s Aug. 10 merger offer to KCS still stands, Creel says, but he stressed the importance of a Sept. 12 deadline CP set for the KCS board to accept its $300 per share offer. “Our appetite and willingness to keep that offer on the table forever does not exist,” Creel says.

“We all have deal fatigue. My goodness. This has been going on so long,” he adds. CP and KCS announced their merger deal in March, only to have CN come in with a higher offer that KCS accepted in May. KCS initially rejected CP’s sweetened Aug. 10 offer.

But that was before yesterday’s STB decision denying CN’s request to place KCS in a voting trust while the deal is under regulatory review. Although CN and KCS say they are reviewing the decision and considering how to move forward, analysts say the ruling effectively kills the prospects for a CN-KCS merger.

CP executives did not see how CN could successfully appeal the STB’s decision or believe that KCS shareholders would be willing to pursue a CN merger without a voting trust.

David Meyer, CP’s merger lawyer, said that if KCS accepts CP’s offer the railways would file a merger application by late September. KCS said today that it is reviewing CP’s offer.

A CP-KCS combination would create the first railroad linking Canada, the U.S., and Mexico.

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