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NewsRailTop Stories

KCS shoots back at Canadian Pacific attempts to derail CN merger

KCS shareholders meet on Aug. 19 to vote on merger agreement

Kansas City Southern is firing back at Canadian Pacific’s recent efforts to thwart a merger between KCS and CP’s rival, CN.

KCS (NYSE: KSU) shareholders are holding a special meeting on Aug. 19 to vote on the CN (NYSE: CNI) merger agreement with KCS. Rivals CP and CN are both 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.

CP (NYSE: CP) last Friday urged KCS shareholders to vote against the merger, saying that if KCS shareholders hold off on their approval, they will have the opportunity to gather more information about the acquisition, including federal regulators’ views of the merger.

But KCS said Monday that its shareholders should focus on the merger agreement and not on CP’s tactics to cast doubt on the merger’s regulatory prospects. 

CP’s actions “are part of an effort to defeat a transaction that offers KCS shareholders $50 per share more than CP was willing to offer. In May, CP decided not to take advantage of its five-business-day match right, per the terms of its initial merger contract, to compete with CN’s superior proposal,” KCS said. 

“Since that time, CP has consistently criticized our combination with CN. CP claims in its latest filing that it is, ‘ready to re-engage with KCS,’ but it did not make any new proposal in its most recent filing. Nor did it commit to making one in the future, going on to say, ‘there can be no assurances that Canadian Pacific will make an offer or proposal to KCS,’” KCS continued.

“KCS believes that shareholders should focus on the opportunity to receive a value under the CN combination of $325 per share, compared to CP’s now terminated offer of $275 per share. We believe that CP’s recommendation to vote against our combination with CN is not in our shareholders’ interest. Shareholder approval of the CN transaction best positions KCS to deliver superior value to our shareholders as soon as possible.

“We continue to recommend that our shareholders vote ‘FOR’ the combination with CN, which has compelling benefits for all stakeholders including notably, our customers. Together with CN, we will create the premier railway for the 21st century, bringing together highly complementary networks to benefit customers, enhancing industry competition, and delivering significant value to shareholders immediately upon close of CN’s voting trust.”

CN’s merger agreement with KCS calls for each share of KCS common stock to be exchanged for $200 in cash and 1.129 shares of CN common stock, according to a KCS.CN says the offer value is worth $33.6 billion and includes the assumption of approximately $3.8 billion of KCS debt.

CP said Thursday that by approving the merger agreement, KCS shareholders would lock KCS into an agreement with CN until Feb. 21, 2022, the end date under the CN merger agreement, CP said.

“We want to ensure KCS stockholders are aware that a vote today, without the benefit of an STB decision on the CN voting trust proposal and without a chance to consider other proposals until the spring of next year, would not be in their best interests,” CP President and CEO Keith Creel said in a release.

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Click here for more FreightWaves articles by Joanna Marsh.

For full coverage of the CN/CP/KCS situation, click here.

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.

One Comment

  1. As a KCS investor since 2005 when the stock was trading at $17.00 a share I have seen a railroad though small handled well through the years by the KCS board and management. However their latest endeavor seems extremely misguided and ill advised. Under Mike Haverty the KCS emerged as a solid railroad and one of the main reasons I invested in the company. He formed a profitable railroad and a railroad that embraced its history and pride. Haverty returned the Southern Belle passenger train for executive use and as a public relation tools to entice business and public awareness of the railroad. The KCS though small in size has always been operated excellently. That is not the case any longer, not even close.

    The KCS had reached an agreement with the CP. They the KCS accepted that offer. They the KCS shook hands on that offer, they the KCS committed to that offer. It was even posted on their web site. The STB on accepting the proposal gave the KCS and CP a green board to expedite the entire process with less stringent requirements. All seemed set. Then the CN who saw this as an enormous formidable threat at the last minute used their size and money power to throw a bid they knew the CP would be hard to match. People say that is business. NO it’s not, what that truly is is the Morganization of a railroad. It is a ploy that was used successfully by JP Morgan in the late 1800’s and early 1900’s to monopolize the railroads. To eliminate competition and force the other railroads to eventually sell or be taken over. This is what the CN is attempting today. It can if successful and approved eliminate 30% of North American railroads. It if allowed the CN would take control of the KCS and force the CP to be swallowed by another mega merge thus eliminating its competition and give them the right to set whatever future rates on shippers they want to set. This is why we have an STB to make sure that this cannot occur. The STB is there to ensure competitiveness not eliminate it. If cannot follow its own guidelines in this then there is no use for an STB.

    This is why I believe the CN-KCS merger will not be allowed by the STB. We as stockholders are running out of time. The stock has already fallen nearly $50 a share in the last month. Quarterly earnings are down. If the voter trust is not approved the stock will continue to fall. If stock holders approve this merger we are locked in for another 6 months. That $50 a share higher offer by CN will be meaningless as the stock may fall more than that especially if we do get to next Feb-March and the STB does not approve the stock will plunge. All of this could of been avoided had the KCS kept its gentlemen’s agreement and approved the CP offer. Then entire process would of been processed by the end of this year , stock would be rising now and the profits already coming in. The KCS management is gambling with our investment dollars and it’s a high gamble. I have already casted my vote and I have voted NO. I urge every investor to vote NO on the merger. The only merger that has always made sense is the CP-KCS merger. If all this falls through then the next vote we should take, in my eyes, is to vote out the entire KCS board

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