Canadian Pacific’s chief sets cutoff on railroad-merger offer

Canadian Pacific Railway’s leader said Kansas City Southern shareholders have until Sept. 12 to accept his acquisition offer after a regulator’s ruling imperiled the U.S. railroad’s $30 billion deal with Canadian National Railway Co., adding that there are limits to his patience.

Canadian Pacific’s $27 billion offer should be deemed superior, even though it’s lower, because it has “deal certainty,” Chief Executive Officer Keith Creel said on a conference call with analysts Wednesday. Creel reaffirmed his bid after the U.S. Surface Transportation Board on Tuesday rejected Canadian National’s voting trust proposal.

Canadian Pacific already has gained the regulator’s approval to use a voting trust to complete the financial part of the transaction, while a ruling on the full merger proposal is pending. Kansas City Southern’s shares could be acquired and put in the trust by the fourth quarter, Creel said.

“The deadline is there. It provides ample time,” Creel said. “On Sept. 13, my appetite and willingness to offer this kind of compelling value at $300 a share is not going to be the same that it is on Sept. 12.”

The transportation board’s ruling appears to vindicate Creel’s strategy of not matching Canadian National’s higher offer, and it puts Canadian Pacific in a position to win over Kansas City Southern, which earns about half of its revenue from its Mexico operations. The two Canadian railroads have been battling to see which becomes the first to operate in all three North American countries.

Kansas City Southern said Wednesday that it won’t hold a Friday shareholder vote on the Canadian National deal as it had previously planned. “We are working with CN to evaluate the options available to us,” the U.S. railroad said in a statement.

In a separate statement on Wednesday, Kansas City Southern confirmed it had received Canadian Pacific’s “unsolicited proposal” and said its board “will evaluate CP’s proposal in accordance with the terms of KCS’ merger agreement with CN and respond in due course.”

Canadian National said it’s confident its acquisition of Kansas City Southern is in the public interest, although the transportation board judged that its voting trust proposal didn’t meet that standard. “We are evaluating the options available to us in light of the STB’s decision,” Canadian National said in a statement Tuesday.