Merger mayhem: CN ups KCS offer; CP seeks to respond

(Source: Progressive Railroading 05/14/2021)

CN has sweetened its offer to acquire Kansas City Southern. Under terms of its revised proposal, CN now would exchange each share of KCS common stock for $200 in cash and 1.129 shares of CN common stock, implying a total enterprise value of $33.6 billion.

CN also has agreed to reimburse KCS $700 million in connection with a termination fee it would need to pay Canadian Pacific under their merger agreement if that deal is called off. As a result, KCS’ board has determined that CN’s revised proposal constitutes a “company superior proposal” as defined in KCS’s merger agreement with CP.

KCS notified CP that it intends to terminate their merger agreement and enter into a definitive agreement with CN. CP retains the right to negotiate merger agreement amendments for at least five business days, and KCS’ board still could make a further determination as to whether any such amendments would cause the CN proposal to no longer constitute a company superior proposal.

“We are delighted that KCS has deemed [our] binding proposal superior, recognizing the many compelling benefits of our combination and expressing confidence in CN’s ability to obtain the necessary approvals and successfully close the transaction,” said CN President and Chief Executive Officer JJ Ruest in a press release. “Our proposal offers a clear path to completion and is structured in a way that gives KCS shareholders both greater immediate value and the opportunity to participate in the future upside of the combined company.”

CP plans to respond to KCS about any merger agreement amendments within the allotted time, CP officials said in a statement.

It isn’t surprising that CN would raise its offer, which highlights that railroad’s recognition of the significant regulatory risks and challenges associated with “its anti-competitive bid,” CP officials said.

“There is nothing new here; this doesn’t make it any more likely that the CN proposal can close into a voting trust. The Surface Transportation Board already approved CP’s use of a voting trust for its pro-competitive combination with KCS,” they said. “We believe that CP’s negotiated agreement with KCS is the only true end-to-end Class I combination that is in the best interests of North American shippers and communities. As we’ve said repeatedly, we are not going to enter into a bidding war.”

CP officials believe the mutually negotiated agreement with KCS represents compelling short- and long-term value for shareholders that’s actually achievable.