U.S. railway KCS prepping to start CN talks: sources
Kansas City Southern is preparing to take a key first step to opening takeover talks with Canadian National Railway Co., according to people familiar with the matter, as the battle for the U.S. railroad operator heats up.
Kansas City Southern is expected to declare in the coming days that CN'S Us$30-billion proposal is likely to lead to an offer that's superior to the deal it reached last month with Canadian Pacific Railway Ltd., said the people, who asked to not be identified because the matter is private. The move would allow it to start talks with the interloper.
It's open to discussions with CN because the new offer presents a higher value to shareholders than its Us$25-billion cash-and-stock deal with Canadian Pacific, the people said. Kansas City Southern likes that CN has only asked for two weeks to finalize its plans and feels that both offers carry similar risks for investors, the people said.
Starting discussions with CN wouldn't cancel the existing agreement with Canadian Pacific, and Kansas City Southern will still need to determine whether the new offer is superior. If it does, Canadian Pacific would then have the opportunity to counterbid, the people said.
While Kansas City Southern views the CN proposal as having more antitrust risks, it doesn't see them as insurmountable, the people said. Kansas City Southern has yet to make a final decision and may still choose not to proceed with the talks, the people said.
“We remain confident that the value and certainty provided by CN'S proposal for Kansas City Southern makes it a clearly superior transaction that is in the public interest and has a clear path to completion,” CN said in a statement.
“We would welcome the opportunity to engage with the board of Kansas City Southern.”
Representatives for Kansas City Southern and Canadian Pacific declined to comment.
After CN'S unsolicited cash-andstock offer this week, Canada's two biggest railroads are battling to win the company, which links their country with the U.S. and Mexico, and take advantage of a reworked North American trade alliance.
Another factor contributing to Kansas City Southern's openness to engage with CN is that both bids are similar in how they mitigate an important risk to the U.S. railroad's investors. Both ensure that shareholders would still get paid even if regulators nix the deal.
On Friday, the chairman of the U.S. House of Representatives Transportation and Infrastructure Committee said the potential acquisition of the Kansas City Southern should set off “alarm bells” about industry consolidation, Reuters reported.
Representative Peter Defazio, a Democrat, said the deal could spark a “new wave of railroad mergers that stifle competition and trigger industry-wide consolidation.”
“Wall Street will make money from railroad consolidation, but the U.S. economy and workforce will be worse off for it,” he said in a statement, Reuters reported.