Canadians reignite bid war for railroad

Canadian Pacific jumped back into the bidding war for Kansas City Southern on Tuesday with an increased $31 billion offer for the U.S. railroad, but its latest bid remains lower than the rival $33.6 billion offer from Canadian National that Kansas City Southern accepted back in May.

Still, the new offer from Canadian Pacific will give Kansas City Southern shareholders more to think about before they vote on the Canadian National deal Aug. 19. Investors also are still waiting to hear whether the U.S. Surface Transportation Board will approve a key part of Canadian National’s plan to acquire Kansas City Southern, and that decision could happen any day.

Kansas City Southern is attractive to both Canadian railroads because it controls critical cross-border routes into Mexico, so either deal would capitalize on expanding trade across North America. And the fact that Kansas City Southern is the smallest of the major U.S. railroads also makes a deal more likely to be approved by regulators who remain wary of signing off on any mergers involving one of the biggest railroads.

Canadian National, based in Montreal, Quebec, looked as though it would take ownership of Kansas City Southern with a $33.6 billion bid in May when Canadian Pacific, in Calgary, Alberta, refused to increase its own $25 billion bid. Canadian Pacific has urged shareholders of Kansas City Southern to reject the higher bid from Canadian National because, it says, it faces a tougher antitrust fight with regulators.

On Tuesday Canadian Pacific said that its new proposal now has terms similar to those in Canadian National’s offer but that its bid provides “significantly higher regulatory certainty.”