Canadian Pacific sweetens bid to purchase KCS

New offer is increase of $2 billion, but still falls short of Canadian National’s deal

CANADIAN PACIFIC HAS SWEETENED

its offer for Kansas City Southern in the hopes that regulatory uncertainty would unravel Canadian National’s merger agreement with KCS.

CP on Aug. 10 boosted its bid by $2 billion, which values KCS at $300 per share. That’s $25 per share higher than CP’s previous offer but still $25 below the offer the KCS board accepted from CN in May.

CEO Keith Creel said CP was making the offer in advance of an Aug. 19 KCS shareholder vote where the railroad’s investors are being asked to approve the merger with CN. “The regulatory uncertainty of the proposed CN merger has placed KCS stockholders in the unfortunate position of having to vote on the proposed CN merger … all the while not having any level of certainty with respect to whether the STB will approve CN’s use of a voting trust,” Creel wrote in a letter to KCS CEO Pat Ottensmeyer.

The Surface Transportation Board says it will rule by Aug. 31 on CN’s request to place KCS into a voting trust while their merger is under regulatory review. The CN-KCS merger is being judged under the board’s more stringent 2001 merger rules

The board in May approved CP’s request to put KCS into a voting trust and would judge a CP-KCS merger under its older and less onerous merger review rules.

The voting trust issue is a key hurdle: KCS shareholders would receive their cash and CN stock only after KCS is placed into a trust.

“We are excited to provide KCS stockholders a significantly more attractive alternative to this situation: this opportunity to turn down the CN merger proposal and once again pursue a combination of CP and KCS — a more certain transaction which offers compelling short-term and long-term value that is actually achievable, already has the benefit of STB approval to use a voting trust and is, in our view, the only viable Class I merger,” Creel wrote.

CN’s response was a statement calling the new CP bid “another inferior offer.” KCS said its board of directors would consider the new offer in accordance of the terms of its deal with CN.

The regulatory climate may have changed since CN and KCS announced their deal. STB Chairman Martin J. Oberman has questioned railroads’ need to merge, and a Biden Administration executive order seeks to reduce the dominance of large corporations — including railroads.

CP and KCS reached a $29 billion deal in March, but CN swooped in with a $33.6 billion offer. CP’s latest offer is worth $31 billion.

William H. Davis Jr. Kansas City Southern’s Bossier City Local passes through Shreveport, La., on Jan. 8, 2020. Canadian Pacific has made a renewed bid to purchase KCS.

Bob Johnston DAY ONE, TRIP ONE Amtrak’s “Day One” Siemens ALC42 Charger locomotive departs Chicago trailing a 21-year-old General Electric P42 engine leading the Capitol Limited to Washington, D.C., on July 20, 2021. Charger No. 301’s livery honors the short-lived paint scheme applied to a former Pennsylvania Railroad E8 for the launch of Amtrak in 1971. The “Day One” design is a one-off among the 75 units that comprise Amtrak’s initial ALC42 purchase. They will eventually replace P42s on all long-distance trains. The new locomotive had arrived from the Siemens plant in Sacramento, Calif., early that morning on a 12½-hour-late California Zephyr. It was on the way to its official handoff to Amtrak in Wilmington, Del., where testing will continue.