CP Rail slams rival’s KCS bid as ‘fool’s gold’
CEO says CN has little prospect of winning U.S. approval with $30B offer
Canadian Pacific Railway Ltd.’s top executive said a rival’s takeover bid for Kansas City Southern is “fool’s gold” because it has little prospect of winning approval from U.S. regulators.
Chief executive officer Keith Creel devoted the first 25 minutes of his company’s firstquarter conference call on Wednesday to picking apart Canadian National Railway Co.’s unsolicited $30 billion (U.S.) bid for the Kansas City-based railway. The offer is about 20 per cent higher than Canadian Pacific’s bid.
“It’s fantasy money. It’s fool’s gold,” Creel said of the CN offer, which is for $325 per Kansas City Southern share. From a regulatory perspective, that deal is “not achievable, so you never get to the value. It’s worth zero,” Creel said.
On Thursday, CN said it had sent a letter signed by CEO Jean-Jacques Ruest to the board of Kansas City Southern, saying it put forward a “superior proposal” and chastising Canadian Pacific for its actions seeking to “distract investors and attack CN’s proposal with a variety of inaccurate and unfounded assertions.”
Canada’s two biggest railroads are battling for a rail network that links their country with the U.S. and Mexico, taking advantage of a reworked North American trade alliance. Kansas City Southern’s network connects farms in the U.S. Midwest to ports along the Gulf of Mexico and reaches deep into Mexico.
Calgary-based Canadian Pacific, whose southbound tracks stop at Kansas City, has little overlap with KCS, giving its bid a potentially smoother path through the Surface Transportation Board than the offer from the larger Canadian National, whose network extends to the Gulf of Mexico.
For intermodal rail shipping, “the truth is there’s only four north-south options today,” Creel said.
“This deal suggests there would only be three.” He predicted there would be pushback from shippers to any Canadian National deal.
But the market is anticipating a higher price for the U.S. railroad than the $275 a share being offered by Canadian Pacific.
The cash component of the Canadian National offer is also higher — $200 per share versus $90 in the Canadian Pacific bid.
Asked by analysts whether Canadian Pacific would raise its offer, Creel said there was no urgency to do anything unless the Kansas City Southern board acts.
Canadian Pacific will probably sweeten its bid to avoid being cut off from the U.S. Gulf Coast and to prevent its biggest competitor from becoming even larger and stronger, railroad consultant Tony Hatch told Bloomberg on Tuesday.