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KCS punts merger vote until late September

Surface Transportation Board decision against proposed CN voting trust prompted delay

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

Kansas City Southern shareholders are holding off on voting or moving on merger proposals from CN and, apparently, Canadian Pacific until late September. The announcement of the postponement referenced votes “on the previously announced definitive merger agreement with CN … and other proposals … .”

Shareholders held a meeting Friday and decided to hold another meeting Sept. 24. In the meantime, KCS (NYSE: KSU) will “evaluate its options and the KCS Board of Directors will continue to make decisions based on the best interests of the Company and its stockholders,” KCS said.

Rivals CN (NYSE: CNI) and CP (NYSE: CP) have both been seeking to acquire KCS (NYSE: KSU). CP and KCS announced in March their plans to merge, but then CN put forth a competing, $33.6 billion bid and KCS opted in May to go with CN.

CP said Saturday that it is ready to re-engage with KCS’ Board of Directors amid expectations that CP’s revised offer could be considered as the “superior proposal.”  

“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 President and CEO Keith Creel said in a release. “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.”

On Tuesday, the Surface Transportation Board rejected CN’s proposed voting trust, which would be used as part of the process to acquire KCS. The board said the trust “is not consistent with the public interest standard under the Board’s merger regulations.”

Following that announcement, CP said it still wants to merge with KCS and that its revised offer from early August still stands — but only until Sept. 12.

Should KCS proceed with CP and drop its agreement with CN, CP would use the same voting trust that STB approved earlier this spring. CP filed a notice of intent to file an application to acquire KCS in March, and that filing is good through Sept. 23, although it could be amended should more time be needed, Creel and CP attorney David Meyer said on Wednesday.

According to KCS, the merger agreement calls for CN to acquire KCS in a stock-and-cash transaction valued at $325 per common share, based on CN’s May 13, 2021, offer, implying a total enterprise value of $33.6 billion. This would also include the assumption of approximately $3.8 billion of KCS debt. Under the terms of the agreement with CN, KCS stockholders would receive $200 in cash and 1.129 shares of CN common stock for each KCS common share.

In August, CP revised its offer and presented KCS with a stock-and-cash bid worth an estimated $31 billion. The proposal, which KCS subsequently declined, valued KCS at $300 per share.

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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.