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Home / News & Reviews / News Wire / Kansas City Southern moves toward a merger agreement with Canadian Pacific (updated)

Kansas City Southern moves toward a merger agreement with Canadian Pacific (updated)

By Bill Stephens | September 4, 2021

Change of course follows key STB ruling earlier in week

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Red locomotive leads multicolored locomotives in snow
Red locomotive leads multicolored locomotives in snow
Canadian Pacific appears to be back in the lead as the potential merger partner of Kansas City Southern, following a Saturday decision by the KCS board. Here, a CP train with KCS locomotives is westbound at Orrs Lake, Ontario, on Feb. 3, 2021. (Brandon Muir)

KANSAS CITY, Mo. – Kansas City Southern is inching toward making Canadian Pacific its merger partner.

KCS said today that it will begin merger discussions with CP after its board unanimously determined that CP’s Aug. 10 bid could be deemed superior to the agreement it reached with Canadian National in May.

Logos for Canadian Pacific and Kansas City SouthernThe U.S. Surface Transportation Board’s Aug. 31 ruling that denied CN’s request to put KCS into an independent voting trust threw a monkey wrench into a proposed CN-KCS merger. The board’s ruling also set a high bar for Class I mergers – except for a tie-up involving CP and KCS, whose voting trust proposal received the STB’s blessing in May.

We look forward to re-engaging with the KCS Board of Directors to advance this unique and achievable Class 1 combination that provides compelling short- and long-term value, CP CEO Keith Creel said in a statement. CP-KCS is the only truly end-to-end Class 1 merger that preserves and enhances competition. It is the perfect combination and we are ready to go to work to unlock this unique opportunity, creating something special for the rail industry and for commerce in North America.

CN’s $325 per share bid still tops CP’s $300 per share offer. But with dim prospects for regulatory approval of a CN-KCS merger, the KCS board has taken a step toward reaching a new deal with CP. A CP-KCS merger will be reviewed under the STB’s less onerous pre-2001 merger rules.

CP and KCS announced their intent to merge in March in a $29 billion deal. But CN made an unsolicited $33 billion bid for KCS in April, which led to their merger agreement on May 21.

CP boosted its offer by $25 per share on Aug. 10 in the hopes of giving KCS shareholders a viable option to CN’s merger bid. KCS postponed an Aug. 19 shareholder vote on the CN deal so it could await the STB decision on the voting trust, a key first step on the regulatory path.

On Wednesday, Creel said KCS would have until noon on Sept. 12 to accept CP’s offer.

CN and KCS have said they are reviewing the STB’s decision, and KCS on Friday adjourned a shareholder meeting where investors were scheduled to vote on the CN deal. The meeting has been rescheduled for Sept. 24.

CN, in a statement this afternoon, said it had been notified that the KCS board has determined that the proposal from Canadian Pacific could reasonably be expected to lead to a ‘Company Superior Proposal’ as defined in CN’s merger agreement with KCS. CN is continuing to evaluate all options available to us. CN will make carefully considered decisions in the interest of our shareholders and stakeholders and in line with our strategic priorities.”

— Updated at 4 p.m. CDT with Canadian National statement.


15 thoughts on “Kansas City Southern moves toward a merger agreement with Canadian Pacific (updated)

  1. So “Creel said KCS would have until noon on Sept. 12 to accept CP’s offer” but “The meeting has been rescheduled for Sept. 24”. Even I can see there is a 12 day issue here. Why would CP set such a deadline? Unless maybe after September 12 there will be a different seal, maybe the old one at $275 instead of $300? Even at $300 KCS shareholders will always feel they were “ripped off”, and maybe they were, but by the STB if anyone.

  2. Jeff, CP only requires the KCS Board to agree by September 12th. As long as the shareholder vote is not unduly long afterwards.

  3. The outcome I predicted all along. There was no way STB was going to allow CNR to walk off with KCS.

    I don’t recall any coverage of the role (if any) of the Mexican government. Does anyone care to fill me in?

    1. in regards to Mexico (and I would assume the same goes for Canada), it is quite likely that they will just follow the STB’s lead. Both companies are based in the States, so the STB decision will be the one that matters, most likely.

    2. Simple: When all is said and done the Mexican ambassador to Canada will trudge to Calgary and present CP with a refund cheque of $1.4 billion plus interest and invite them to bid on the concession in 90 days. But at least CP will have their own railway to Shreveport.

  4. The CP and CN are based in Calgary and Montreal respectively, unless they are speaking of their US counterparts, which I would think would not be handling the merger.

    1. ANTHONY – I really don’t know who is merging with who if the railroads are separately incorporated in the three countries (plus Panama). Traditionally, long ago CN’s American subsidiaries GT, GTW, CV and DW&P were all part of the same corporation based in downtown Detroit. While Soo Line, owned by Canadian Pacific, was I think based in Minneapolis. As far as I know the current corporate structures are somewhat similar. I’m not sure but I believe that “Soo Line” exists to this day.

      Obviously corporations these days are multinational — prior to the Stellantis merger, Fiat Chrysler was incorporated in Netherlands, with corporate headquarters in a suburb west of London, but run jointly out of Italy and Auburn Hills, Michigan. How that worked in other countries with manufacturing and/ or sales (like Canada) I just don’t know.

        1. According to Wikipedia, Grand Trunk corporation still exists for the US subsidiaries – and has expanded to include ICRR etc. as well as the obvious contractions like the former CV going away. Wikipedia does not give the location of the corporate headquarters so I can’t say if it’s still Detroit. Detroit was a logical HQ location at one time but the Chicago area would seem more logical now.

          1. CV still exists as a corporate entity and in fact still owns all their original property. Only the tracks were sold to the New England Central Railroad.

  5. just everyone remember, it doesn’t matter which railroad gets the KCS, the current KCS customers are the screwed. service will become even worse than it is. the Canadians only want it for the Mexican connection, not the US customers.

  6. I believe that the Mexican operations of KCS are a 50 year concession from that government. Since this agreement was made around the late 90s, that means we are approaching the halfway point. Warren Buffett sounded a warning about whether Mexico would renew this deal or not. If not, KCS’s value would be far less.

  7. As I said in a prior post, there are other ways for CN to reach Mexico if that is their goal and it wouldn’t be a concession that costs $325 a share to accomplish. These Gordon Gekko’s of railroads are all too chicken to raise the capital to invest in the markets they seek. They prefer lawyers, analysts and accountants to determine their fate. Time to stop looking for business via the STB and go make the future you seek. It’s a clear fact that CN wants better access to the petro coast to dump off that Alberta crude, so quit sitting on your collective hands worrying about what CP does. Get your line between Baton Rouge and Houston built to get that crappy tar oil in play and start mapping your plans for Laredo or the RGV. You say you want to compete, so put your money where your mouths are.

  8. John, it’s not crappy tar oil, it is refined into jet fuel, diesel fuel, gasoline and many other products. Ever been there? I have and they do take environmental issues very seriously.
    All forms of energy extraction are risky, for example the oil leaking into the Gulf of Mexico off the coast of Louisiana right now.

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