CN (TSX: CNR, NYSE: CNI) and Kansas City Southern (NYSE: KSU)
(“KCS”) today announced that they have entered into a definitive
merger agreement to create the premier railway for the 21st
century.
Under the terms of the agreement, which was
unanimously approved by the Board of Directors of each company, KCS
shareholders will receive $3252 per common share based on CN’s May
13, 2021 offer, which implies a total enterprise value of $33.6
billion, including the assumption of approximately $3.8 billion of
KCS debt. KCS shareholders will receive $200 in cash and 1.129
shares of CN common stock for each KCS common share, with KCS
shareholders expected to own 12.6% of the combined company. This
represents an implied premium of 45% when compared to KCS’
unaffected closing stock price on March 19, 2021. KCS’ preferred
shareholders will receive $37.50 in cash for each preferred
share.
_____________________1 The combination is
expected to be accretive to CN’s Adjusted Diluted EPS, excluding
incremental transaction-related amortization, in the first full
year following CN’s acquisition of control of KCS, and is expected
to generate double-digit accretion upon the full realization of
synergies thereafter.2 All figures in U.S. dollars, except where
noted. All conversions between Canadian dollars and U.S. dollars
are based on a 0.827 foreign exchange rate as of May 12, 2021.
Where applicable, figures are based on the CN closing share price
on the NYSE of $110.76 as of May 12, 2021.
“We are thrilled that KCS has agreed to combine
with CN to create the premier railway for the 21st century. I would
like to thank the numerous stakeholders of both companies who have
demonstrated overwhelming support for this compelling combination,
and we look forward to delivering the many benefits of this
pro-competitive transaction to them. I am confident that together
with KCS’ experienced and talented team, we will meaningfully
connect the continent – enhancing competition, offering more choice
for customers, and driving environmental stewardship and
shareholder value.”
- JJ Ruest, president
and chief executive officer of CN
“As North America’s most customer-focused
transportation provider, we are excited about this combination with
CN, which will provide customers access to new single-line
transportation services at the best value for their transportation
dollar, and increase competition among the Class 1 railroads. Our
companies’ cultures are strongly aligned, and we share a commitment
to environmental stewardship, safe operations, reliable service and
outstanding performance. As a larger continental enterprise with
complementary routes and an enhanced platform for revenue growth,
capital investment, and job creation, we will be positioned to
deliver on the transaction’s powerful synergies which will create
new growth opportunities for our customers, employees, labor
partners, communities and shareholders.”
- Patrick J. Ottensmeyer, president
and chief executive officer of KCS
“KCS is the ideal partner for CN to connect the
continent, helping to drive North American trade and economic
prosperity. We are confident in our ability to gain the necessary
regulatory approvals and complete the combination with KCS, and we
look forward to combining with KCS to create new opportunities,
more choice and a stronger company.”
- Robert Pace, chair of the board of
CN
Compelling Strategic and Financial
Rationale
Creates the premier railway for the
21st century. The
combination of CN and KCS will further accelerate CN’s
industry-leading growth profile by connecting North America’s
industrial corridor to create new options for shippers and new
revenue for the combined company. A CN-KCS combination will
substantially help realize the many benefits of the USMCA, bringing
it to life in a meaningful way.
Brings together highly complementary
networks to benefit customers. CN and KCS will create a
safer, faster, cleaner and stronger railway that is ideally
positioned to support the growth of an emerging consumption-based
economy through better service options and customer choice.
Enhances competition. This
combination will create an express route that connects the U.S.,
Mexico and Canada with a seamless single-owner, single-operator
service, and preserves access to all existing gateways to enhance
route choices and ensure robust price competition.
Delivers significant value to KCS
shareholders. CN’s proposal delivers an implied premium of
45% to KCS shareholders, as well as participation in the
significant upside of the combined company. Additionally, KCS
shareholders will have the ability to receive the merger
consideration immediately upon the closing of CN’s voting trust,
which is expected to be in the second half of 2021. This
combination will also significantly expand the combined company’s
total addressable market (“TAM”) – CN and KCS would target $8
billion of TAM opportunity while supporting growth across the
rapidly growing USMCA network.
Presents compelling synergies and pro-forma financial
metrics. CN currently estimates that the combination would
result in EBITDA synergies approaching $1 billion annually, with
the vast majority of synergies coming from additional revenue
opportunities. CN anticipates the transaction to be accretive to
CN’s adjusted diluted earnings per share in the first full year
following CN assuming control of KCS.
Accelerates innovation. CN and
KCS share cultures that value safety, service and environmental
stewardship. CN and KCS will accelerate innovation and investment
as CN brings its industry-leading safety technology and fuel
efficiency to the KCS network.
Yields demonstrable benefits for the
environment. The combination will yield demonstrable
benefits for the environment by converting significant volumes of
truck traffic onto rails, delivering better fuel efficiency at
lower cost. CN has the ability to remove more than 300 trucks from
the road with every additional freight train. Because trains are 4
to 5 times more fuel-efficient than trucks, the combined company
will also have an opportunity to realize a 75% reduction in
greenhouse gas emissions, resulting in cleaner air for local
communities along CN’s line. While preventing thousands of tons of
emissions from entering the atmosphere every day, the expected
conversion of truck traffic to rails will also reduce traffic
congestion in these regions.
Creates opportunities for local
communities. Upon the closing of the transaction, CN will
maintain corporate headquarters in Montreal, Canada, and establish
Kansas City, Missouri, as the combined company’s United States
headquarters. The Mexico headquarters will remain in Mexico City
and the operations center in Monterrey. CN will make significant
infrastructure investments in key communities across the new
network, including Illinois, Missouri, Michigan, Louisiana and
Texas, meaning more economic opportunity and more jobs.
Financing
The cash portion of the consideration will be
funded through a combination of cash-on-hand and approximately $19
billion of new debt. Upon closing of the transaction and including
the assumption of approximately $3.8 billion of KCS debt, we expect
to have outstanding debt of approximately $33 billion, representing
a leverage ratio of 4.5x pro forma 2021 EBITDA3, and we expect to
maintain an investment grade credit rating. Based on the proposed
exchange ratio and CN’s current quarterly dividend of C$0.615 per
CN share, KCS shareholders are expected to receive the equivalent
of $2.30 in annual dividends per KCS share.
_____________________3 Represents adjusted debt-to-adjusted
EBITDA multiple, assuming closing into trust at end of 2021.
Approvals and Timing
CN and KCS are confident in their ability to
obtain all necessary regulatory approvals, including from the
Surface Transportation Board (“STB”) and the Federal Economic
Competition Commission (COFECE) and Federal Telecommunications
Institute (IFT) in Mexico.
CN has proposed a “plain vanilla” voting trust.
Upon KCS shareholder approval of the transaction, and satisfaction
of customary closing conditions, CN will acquire KCS shares and
place them into the voting trust. KCS shareholders will receive the
merger consideration immediately upon the closing of CN’s voting
trust, which is expected to be in the second half of 2021.
Following this step, the STB and other
regulatory authorities must approve CN’s control of KCS. The
completion of the transaction is expected to take place in the
second half of 2022. Upon completion, CN and KCS will begin the
integration process to realize the significant benefits of the
combination for their stakeholders.
For more information on CN’s acquisition of KCS,
please visit www.ConnectedContinent.com.
AdvisorsJ.P. Morgan and RBC
Capital Markets are acting as CN’s financial advisors, and
Centerview Partners LLC is also serving as a financial advisor.
Cravath, Swaine & Moore LLP, Sidley Austin LLP, Norton Rose
Fulbright LLP, Torys LLP, Agon and Stikeman Elliot LLP are
providing legal counsel to CN.
BofA Securities and Morgan Stanley & Co. LLC
are serving as financial advisors to Kansas City Southern.
Wachtell, Lipton, Rosen & Katz, Baker & Miller PLLC, Davies
Ward Phillips & Vineberg LLP, WilmerHale, and White & Case,
S.C. are serving as legal counsel to Kansas City Southern.
About CNCN is a world-class
transportation leader and trade-enabler. Essential to the economy,
to the customers, and to the communities it serves, CN safely
transports more than 300 million tons of natural resources,
manufactured products, and finished goods throughout North America
every year. As the only railroad connecting Canada’s Eastern and
Western coasts with the U.S. South through a 19,500-mile rail
network, CN and its affiliates have been contributing to community
prosperity and sustainable trade since 1919. CN is committed to
programs supporting social responsibility and environmental
stewardship.
About Kansas City
SouthernHeadquartered in Kansas City, Mo., Kansas City
Southern (KCS) (NYSE: KSU) is a transportation holding company that
has railroad investments in the U.S., Mexico and Panama. Its
primary U.S. holding is The Kansas City Southern Railway Company,
serving the central and south central U.S. Its international
holdings include Kansas City Southern de Mexico, S.A. de C.V.,
serving northeastern and central Mexico and the port cities of
Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in
Panama Canal Railway Company, providing ocean-to-ocean freight and
passenger service along the Panama Canal. KCS' North American rail
holdings and strategic alliances with other North American rail
partners are primary components of a unique railway system, linking
the commercial and industrial centers of the U.S., Mexico and
Canada. More information about KCS can be found at
www.kcsouthern.com
Forward Looking
StatementsCertain statements included in this news release
constitute “forward-looking statements” within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and
under Canadian securities laws, including statements based on
management’s assessment and assumptions and publicly available
information with respect to KCS, regarding the proposed transaction
between CN and KCS, the expected benefits of the proposed
transaction and future opportunities for the combined company. By
their nature, forward-looking statements involve risks,
uncertainties and assumptions. CN cautions that its assumptions may
not materialize and that current economic conditions render such
assumptions, although reasonable at the time they were made,
subject to greater uncertainty. Forward-looking statements may be
identified by the use of terminology such as “believes,” “expects,”
“anticipates,” “assumes,” “outlook,” “plans,” “targets,” or other
similar words.
Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other
factors which may cause actual results, performance or achievements
of CN, or the combined company, to be materially different from the
outlook or any future results, performance or achievements implied
by such statements. Accordingly, readers are advised not to place
undue reliance on forward-looking statements. Important risk
factors that could affect the forward-looking statements in this
news release include, but are not limited to: the outcome of the
proposed transaction between CN and KCS; the parties’ ability to
consummate the proposed transaction; the conditions to the
completion of the proposed transaction; that the regulatory
approvals required for the proposed transaction may not be obtained
on the terms expected or on the anticipated schedule or at all;
CN’s indebtedness, including the substantial indebtedness CN
expects to incur and assume in connection with the proposed
transaction and the need to generate sufficient cash flows to
service and repay such debt; CN’s ability to meet expectations
regarding the timing, completion and accounting and tax treatments
of the proposed transaction; the possibility that CN may be unable
to achieve expected synergies and operating efficiencies within the
expected time-frames or at all and to successfully integrate KCS’
operations with those of CN; that such integration may be more
difficult, time-consuming or costly than expected; that operating
costs, customer loss and business disruption (including, without
limitation, difficulties in maintaining relationships with
employees, customers or suppliers) may be greater than expected
following the proposed transaction or the public announcement of
the proposed transaction; the retention of certain key employees of
KCS may be difficult; the duration and effects of the COVID-19
pandemic, general economic and business conditions, particularly in
the context of the COVID-19 pandemic; industry competition;
inflation, currency and interest rate fluctuations; changes in fuel
prices; legislative and/or regulatory developments; compliance with
environmental laws and regulations; actions by regulators; the
adverse impact of any termination or revocation by the Mexican
government of KCS de México, S.A. de C.V.’s Concession; increases
in maintenance and operating costs; security threats; reliance on
technology and related cybersecurity risk; trade restrictions or
other changes to international trade arrangements; transportation
of hazardous materials; various events which could disrupt
operations, including illegal blockades of rail networks, and
natural events such as severe weather, droughts, fires, floods and
earthquakes; climate change; labor negotiations and disruptions;
environmental claims; uncertainties of investigations, proceedings
or other types of claims and litigation; risks and liabilities
arising from derailments; timing and completion of capital
programs; and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United
States. Reference should also be made to Management’s Discussion
and Analysis in CN’s annual and interim reports, Annual Information
Form and Form 40-F, filed with Canadian and U.S. securities
regulators and available on CN’s website, for a description of
major risk factors relating to CN. Additional risks that may affect
KCS’ results of operations appear in Part I, Item 1A “Risks Related
to KCS’s Operations and Business” of KCS’ Annual Report on Form
10-K for the year ended December 31, 2020, and in KCS’ other
filings with the U.S. Securities and Exchange Commission
(“SEC”).
Forward-looking statements reflect information
as of the date on which they are made. CN assumes no obligation to
update or revise forward-looking statements to reflect future
events, changes in circumstances, or changes in beliefs, unless
required by applicable securities laws. In the event CN does update
any forward-looking statement, no inference should be made that CN
will make additional updates with respect to that statement,
related matters, or any other forward-looking statement.
Non-GAAP MeasuresCN reports its
financial results in accordance with United States generally
accepted accounting principles (GAAP). CN also uses non-GAAP
measures in this news release that do not have any standardized
meaning prescribed by GAAP. This news release also includes certain
forward looking non-GAAP measures or discussions of such measures
(EPS, Adjusted Diluted EPS, EBITDA and a leverage ratio being
adjusted debt to adjusted EBITDA). It is not practicable to
reconcile, without unreasonable efforts, these forward looking
measures to the most comparable GAAP measures (diluted EPS, net
income and long term debt to net income ratio, respectively), due
to unknown variables and uncertainty related to future results.
Please see note on Forward Looking Statements above for further
discussion.
No Offer or SolicitationThis
news release does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
Additional Information and Where to Find
ItIn connection with the proposed transaction, CN will
file with the SEC a registration statement on Form F-4 to register
the shares to be issued in connection with the proposed
transaction. The registration statement will include a preliminary
proxy statement of KCS which, when finalized, will be sent to the
stockholders of KCS seeking their approval of the merger-related
proposals. This news release is not a substitute for the proxy
statement or registration statement or other document CN and/or KCS
may file with the SEC or applicable securities regulators in Canada
in connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ
THE PROXY STATEMENT(S), REGISTRATION STATEMENT(S), TENDER OFFER
STATEMENT, PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH
THE SEC OR APPLICABLE SECURITIES REGULATORS IN CANADA CAREFULLY IN
THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT CN, KCS AND THE PROPOSED
TRANSACTIONS. Any definitive proxy statement(s), registration
statement or prospectus(es) and other documents filed by CN and KCS
(if and when available) will be mailed to stockholders of CN and/or
KCS, as applicable. Investors and security holders will be able to
obtain copies of these documents (if and when available) and other
documents filed with the SEC and applicable securities regulators
in Canada by CN free of charge through at www.sec.gov and
www.sedar.com. Copies of the documents filed by CN (if and when
available) will also be made available free of charge by accessing
CN’s website at www.CN.ca. Copies of the documents filed by KCS (if
and when available) will also be made available free of charge at
www.investors.kcsouthern.com, upon written request delivered to KCS
at 427 West 12th Street, Kansas City, Missouri 64105, Attention:
Corporate Secretary, or by calling KCS’s Corporate Secretary’s
Office by telephone at 1-888-800-3690 or by email at
corpsec@kcsouthern.com.
ParticipantsThis news release
is neither a solicitation of a proxy nor a substitute for any proxy
statement or other filings that may be made with the SEC and
applicable securities regulators in Canada. Nonetheless, CN, KCS,
and certain of their directors and executive officers and other
members of management and employees may be deemed to be
participants in the solicitation of proxies in respect of the
proposed transactions. Information about CN’s executive officers
and directors is available in its 2021 Management Information
Circular, dated March 9, 2021, as well as its 2020 Annual Report on
Form 40-F filed with the SEC on February 1, 2021, in each case
available on its website at www.CN.ca/investors/ and at www.sec.gov
and www.sedar.com. Information about KCS’ directors and executive
officers may be found on its website at www.kcsouthern.com and in
its 2020 Annual Report on Form 10-K filed with the SEC on January
29, 2021, available at www.investors.kcsouthern.com and
www.sec.gov. Additional information regarding the interests of such
potential participants will be included in one or more registration
statements, proxy statements, tender offer statements or other
documents filed with the SEC and applicable securities regulators
in Canada if and when they become available. These documents (if
and when available) may be obtained free of charge from the SEC’s
website at www.sec.gov and from www.sedar.com, as applicable.
Contacts:
Media: CNCanadaMathieu
GaudreaultCN Media Relations & Public Affairs(514)
249-4735Mathieu.Gaudreault@cn.caLongview Communications &
Public AffairsMartin Cej (403) 512-5730
mcej@longviewcomms.caUnited StatesBrunswick
GroupJonathan Doorley / Andrew Spinelli(917) 459-0419 / (312)
468-7431jdoorley@brunswickgroup.comaspinelli@brunswickgroup.com Media:
KCSC. Doniele CarlsonKCS Corporate Communications &
Community Affairs(816) 983-1372dcarlson@kcsouthern.comJoele Frank,
Wilkinson Brimmer KatcherTim Lynch / Ed Trissel(212) 355-4449 |
Investment Community: CNPaul
ButcherVice-PresidentInvestor Relations(514)
399-0052investor.relations@cn.ca Investment Community:
KCSAshley ThorneVice PresidentInvestor Relations(816)
983-1530athorne@kcsouthern.comMacKenzie Partners, Inc.Dan Burch /
Laurie Connell(212) 929-5748 / (212) 378-7071 |
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