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Kansas City Southern accepts Canadian Pacific merger offer

By Bill Stephens | September 12, 2021

Canadian National has five days to respond

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Logos for Canadian Pacific and Kansas City Southern

Logos for Canadian Pacific and Kansas City SouthernKANSAS CITY, Mo. — Kansas City Southern on Sunday accepted Canadian Pacific’s $300 per share merger offer, spurning Canadian National’s higher bid due to its regulatory obstacles.

In a midday press release, KCS said its board had determined CP’s revised offer constituted a “Company Superior Proposal” as defined in the agreement with CN.

CP extended the offer on Aug. 10, and had given KCS until Sunday to accept.

Canadian Pacific said it “stands ready to execute a definite merger agreement” after completing negotiations with KCS.

“We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership,” CP CEO Keith Creel said in a press release. “As we have said throughout this process, CP remains committed to everything this opportunity presents. This merger proposal provides KCS stockholders greater regulatory and value certainty. We are excited to move forward as we work toward making this perfect match a reality.”

CN will have five days to respond. If CN doesn’t sweeten its offer, KCS’s merger agreement will be scrapped and KCS’s deal with CP will go into effect.

Analysts believe it’s unlikely that CN would boost its $325 per share offer for KCS in light of last week’s U.S. Surface Transportation Board decision denying CN’s request to put KCS into an independent voting trust while their merger is under review. The board also signaled that the only Class I railroad combination likely to gain approval was between CP and KCS.

CN also is facing a shareholder revolt led by activist investor TCI Fund Management, which in May urged CN to drop its pursuit of KCS due to the regulatory risk involved. Last week, citing the STB decision, TCI called for the removal of CN CEO JJ Ruest and Chairman Robert Pace and is seeking several seats on the railway’s board [see “Major CN investor calls for ouster of CEO and chairman …,” Trains News Wire, Aug. 31, 2021, and “Activist investor plans to call for meeting …,” News Wire, Sept. 7, 2021].

CP and KCS plan to file their merger application with the STB in October. The merger is expected to gain STB approval in about a year.

The combination would be the first between Class I systems in two decades and would create the first railroad linking Canada, the U.S., and Mexico.

CP in May received STB approval to place KCS into a voting trust, a key first step because it would allow KCS investors to receive cash and CP shares prior to the STB review that’s expected to take about a year [see “STB approves Canadian Pacific request …,” News Wire, May 6, 2021]. The STB also will review the CP-KCS merger under its less onerous, pre-2001 merger rules.

The CP-KCS deal brings the battle for KCS full circle. CP and KCS in March announced a friendly, $29 billion merger deal. KCS in May accepted CN’s $33.6 billion unsolicited offer. CP did not give up, however, and said all along that a CN-KCS merger could not gain regulatory approval because it raised competitive concerns.

Both Canadian railroads gathered widespread shipper support for their proposed acquisition of KCS, whose cross-border traffic is one of the few pockets of strong railroad volume growth in North America.

— This is a developing story. Watch Trains News Wire for updates and additional developments.



12 thoughts on “Kansas City Southern accepts Canadian Pacific merger offer

  1. Now KCS and CP can go ahead with their merger petition, probably the last Class 1 merger to be decided based on the ‘old’ STB rules. Of course, KCS+CP will come away with a route network which is rather frail in some places. They will have to find some ‘best friends’ to give them trackage rights or haulage to shore up the weak spots in their network. Who will these best friends be? Some may be quick to say NS, and that’s perfectly logical; but KCS+CP can deal with whomever they want. Most likely NOT CN!

    1. Where are the weak spots in the CN-KCS combo? Other than in Southern Iowa, which I’m sure CN will fix asap, it seems like a good fit.

  2. CP’s route from Ontario to the KCS connection at Kansas City is a weak spot. It is a long, slow trip across Chicagoland from the NS to Bensenville yard. Any way they could get to Springfield, IL from Chicago or Detroit would be helpful. CN, NS, or UP all have potential. Another reasonable alternative would be Iowa Interstate from the south side of Chicago to CP in Davenport, IA.

  3. CPRS already has trackage rights from 3 endpoints in the East to Chicago. Buffalo to Chicago using the water level route, Detroit to Chicago via Elkhart and Goshen. They also have rights on the CF&E from Lima to Chicago and down to Jeffersonville, Ohio west of Columbus.

    I am not sure why NS would be willing to open up rights to their ROW between Fort Wayne and Kansas City to what would be an outright competitor.

    The only other “Chicago Bypass” routes would be the NS Kankakee District to Streator, or simply buy the TPW outright to get as far as Peoria and use UP to reach Springfield.

    The real benefit for CPRS is now a direct route for them to get Alberta tar oil and Bakken frac oil to the Gulf Petro Coast. While CN wanted access to the Mexican auto parts biz, they really wanted to keep CPRS out of the tar oil market.

  4. Excellent!

    NOW, to come up with a worthy title for this new railroad. Certainly not the garbage originally proposed.

    I suggest Canadian, American & Mexican Railway.
    Or Great North American Railway.
    Or Atlantic, Pacific & Gulf Railroad.

    There are so many choices far greater than the clunky, non-traditional, and unimaginative “Canadian Pacific-Kansas City.”

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