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KCS declines Canadian Pacific’s revised, $31B takeover offer

But Surface Transportation Board’s timetable may delay shareholder vote on CN-KCS merger

A Kansas City Southern train. (Photo: Jim Allen/FreightWaves)

Kansas City Southern’s board of directors spurned Canadian Pacific’s revised offer to acquire KCS, but it could also hold off on a vote that would seal KCS’ commitment to merge with CN

KCS (NYSE: KSU) late Thursday determined that CN’s (NYSE: CNI) bid to acquire KCS is still the “superior proposal,” turning down CP’s revised offer. 

Rivals CP (NYSE: CP) and CN are seeking to acquire KCS. CP and KCS announced in March their plans to merge, but then CN put forth a competing bid and KCS opted in May to go with CN’s bid instead. 

On Tuesday, CP laid out a new offer: a stock-and-cash bid worth an estimated $31 billion. The proposal valued KCS at $300 per share. In contrast, CN’s offer in May valued KCS at $325 per share in an offer worth $33.6 billion.  

But KCS on Thursday still opted for CN’s offer: “The KCS Board reaffirms its recommendation to KCS shareholders to vote in favor of the pro-competitive, end-to-end merger with CN, which will create the premier railway for the 21st century and offers unparalleled opportunities and benefits for customers, employees, shareholders, the environment and the North American economy,” KCS said.

However, the KCS board could also postpone a decision that would’ve sealed KCS’ commitment to CN’s merger proposal. KCS shareholders were planning to vote next Thursday on whether to approve CN and KCS’ merger agreement, but the KCS board decided not to hold that vote if the Surface Transportation Board hasn’t yet issued a decision by next Tuesday on whether it approves CN’s proposed voting trust, which would be used to acquire KCS. 

The STB is the regulatory body that reviews proposed mergers between major freight railroads, and KCS has said its approval of the merger agreement between KCS and CN is predicated on STB’s approval of CN’s proposed voting trust.

The STB said on Tuesday that it would issue a decision on CN’s voting trust sometime before Aug. 31.

“The KCS Board of Directors has determined, with the concurrence of CN, that if the STB has not released a public decision by August 17, 2021, at 6:00 p.m., Central Time, the Special Meeting will be adjourned to give all shareholders and the Board time to receive and consider the STB decision. If the meeting is adjourned, the Board will announce the date on which it will reconvene the meeting,” KCS said.

CN and CP both said they viewed KCS’ actions positively. 

“We are pleased that the KCS board of directors has reiterated that the agreed transaction with CN is superior and recommends that stockholders vote FOR our pro-competitive combination,” said CN President and CEO JJ Ruest.

He continued, “Together, we will enhance competition, drive economic growth and realize the benefits of a fully end-to-end transportation network connecting North America. We look forward to continuing to work with KCS to deliver this compelling combination to both companies’ stakeholders.”

CN also affirmed that it supported the decision by the KCS board to adjourn the shareholder meeting next Thursday if STB doesn’t issue a decision on CN’s voting trust by Tuesday. 

Meanwhile, CP said it “applauds” KCS’ decision to adjourn Thursday’s shareholder meeting. 

“CP has always maintained KCS stockholders should have all relevant information, including the STB decision on the CN voting trust, to be able to make an informed decision, avoid being locked into the CN-KCS deal and preserve the ability to consider a better alternative proposal. … We are confident that the STB will take the time needed to review the myriad of issues and concerns the CN voting trust raises. We continue to believe that CN’s proposed use of a voting trust should not be approved because it is anti-competitive and not in the public interest,” CP said.

CP noted that proxy advisers Institutional Shareholder Services (ISS) supported KCS’ decision to hold off on approving the CN-KCS merger agreement if STB doesn’t issue a decision beforehand. 

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.