Canadian National Expected to Sweeten Kansas City Southern Bid -- 3rd Update
By Dana Cimilluca and Cara Lombardo
Canadian National Railway Co. took the lead in the race to
acquire Kansas City Southern, which declared the railroad
operator's roughly $30 billion takeover bid superior to a rival
The declaration came after Canadian National agreed to add more
stock to its proposal and cover the $700 million breakup fee Kansas
City Southern would owe Canadian Pacific Railway Ltd. for walking
away from their existing merger agreement, according to statements
from the companies late Thursday.
The Wall Street Journal had earlier reported that Canadian
National was expected to sweeten its offer and could win over
Kansas City Southern soon.
Kansas City Southern had asked Canadian National, which put in a
bid seeking to wrest the railroad operator from Canadian Pacific
last month, to make adjustments to its proposal, people familiar
with the matter had said.
Canadian Pacific now has a period of at least five days to
sweeten its offer or walk away with the breakup fee.
The railway said in an earlier statement that a revised bid from
Canadian National "only highlights CN's recognition of the
significant regulatory risk of its anticompetitive bid."
Canadian National had offered $325 for each Kansas City Southern
share, including $200 in cash and 1.059 Canadian National
The new proposal is still worth $325 a share but now calls for
each share of Kansas City Southern to be exchanged for $200 in cash
and 1.129 shares of Canadian National stock.
Canadian Pacific had agreed in March to pay $275 a share --
0.489 of its shares and $90 in cash -- or about $25 billion. Based
on the stock prices midday Thursday, Canadian National's bid was
worth around $319 a share and Canadian Pacific's, about $285.
Kansas City Southern shares were trading around $309, indicating
investors believed Canadian Pacific's current bid wouldn't carry
Either deal would involve a two-step process. First, a voting
trust would acquire Kansas City Southern shares and, assuming
necessary approvals are received, the companies would then merge.
Both the use of a trust and the merger itself need approval from
the U.S. Surface Transportation Board, which requires major
railroad combinations to be in the public interest and enhance
The STB approved a voting trust proposed as part of the Canadian
Pacific deal last week, as was expected. While Canadian National
had asked STB to wait and rule on both voting trust proposals at
the same time, the STB decision didn't mention Canadian National's
request, which it is expected to rule on later. Kansas City
Southern switching its allegiance signals a belief that the STB
will ultimately bless a trust for Canadian National too.
Kansas City Southern said late last month that it was entering
into discussions with Canadian National after determining its
earlier proposal could "reasonably be expected" to lead to a better
The bids are the first major transactions to be brought before
the STB in more than two decades. Whichever suitor ultimately
prevails, the expectation is that the merger itself wouldn't be
ruled on until well into next year.
Kansas City Southern, the smallest of the major freight
railroads in the U.S., plays a big role in U.S.-Mexico trade, with
a network stretching across both countries, which helps explain its
desirability as an acquisition target.
Ted Mann contributed to this article.
Write to Dana Cimilluca at firstname.lastname@example.org and Cara
Lombardo at email@example.com
(END) Dow Jones Newswires
May 13, 2021 19:42 ET (23:42 GMT)
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