Canadian Pacific is urging Kansas City Southern to reject Canadian National’s rival $33.6 billion takeover bid, but it still refuses to increase its own $25 billion bid.
Railway refuses to raise its own bid, saying rival won’t get regulator’s OK
OMAHA, NEB.—Canadian Pacific is urging Kansas City Southern to reject Canadian National’s rival $33.6-billion (U.S.) takeover bid, but it still refuses to increase its own $25-billion bid.
Canadian Pacific maintained Thursday that Canadian National’s bid won’t be approved by regulators because it would hurt competition and add to rail congestion around Chicago, so CEO Keith Creel doesn’t see a need to increase its offer. Kansas City Southern officials didn’t immediately respond Thursday morning, but a week earlier they backed the CN offer.
“My view, CP’s view, has been and continues to be, the alternative is a deal that can’t be approved,” Creel said Thursday. “It’s not necessary to engage in a bidding war to match CN’s value, which is not achievable. There is no path to deal certainty. In fact, it’s a path wrought with deal uncertainty.”
Canadian Pacific had said combining Kansas City Southern and Canadian National would hurt competition because both those companies have rail lines that compete for business between the Midwest and the Gulf Coast.
Canadian Pacific’s network connects to Kansas City Southern near its headquarters in Kansas City, Mo., but those two railroads don’t overlap elsewhere.
Canadian National has said it doesn’t believe its offer would hurt competition, and it is confident it could address any competitive concerns later in the U.S. Surface Transportation Board’s review process. Canadian National said it will now work to complete the deal with Kansas City Southern.
“We are confident in our ability to obtain the STB’s approval for our voting trust and ultimately close our pro-competitive combination with KCS,” Canadian National said in a statement.
A week ago, Canadian National won the support of Kansas City Southern by sweetening its offer to include more stock and by offering to pay the $700-million breakup fee that would be owed to Canadian Pacific if Kansas City Southern walks away from the deal that was announced in March.
CN’s latest offer still includes $200 in cash for each Kansas City Southern share, but the Canadian railroad is now also offering 1.129 shares of its stock. Previously, Canadian National had been offering 1.059 shares of CN common stock for each share.
The transaction also includes about $3.8 billion in Kansas City Southern’s debt.
Ever since CN joined the bidding for Kansas City Southern, Canadian Pacific had resisted increasing its original offer, which valued each Kansas City Southern share at $275.
It included $90 cash with the rest coming in the form of CP stock.
“KCS must now weigh the upside of CN’s deal against the potential for the deal to fall apart,” Citi Research analyst Christian Wetherbee said. If the CN deal does fall apart, Wetherbee said Kansas City Southern might see another offer from Canadian Pacific but that subsequent offer could come at a lower price.
Edward Jones analyst Jeff Windau said Canadian Pacific’s approach shows just how confident that railroad is in the view that Canadian National’s acquisition of Kansas City Southern won’t be approved.
“They think they have a strong hand to continue to play,” Windau said.
But he doesn’t think CP’s arguments will be enough to persuade Kansas City Southern’s board to reject CN’s higher offer unless board members doubt the CN deal will get approved.
“At the end of the day, it just boils down to do they think they can get it through the Surface Transportation Board?” Windau said.
The Surface Transportation Board hasn’t approved any major railroad mergers since the 1990s.