Kansas City Southern to Combine With Canadian National Railway in Roughly $30 Billion Deal

By Dave Sebastian

Kansas City Southern said it would combine with Canadian National Railway Co. in a roughly $30 billion deal after deeming the offer as superior to the agreement it had struck with Canadian Pacific Railway Ltd.

The deal has an enterprise value of $33.6 billion, including the assumption of about $3.8 billion in Kansas City Southern's debt, the companies said Friday. The combination would create the first freight-rail network linking the U.S., Mexico and Canada by connecting ports in the three countries.

The Wall Street Journal on Thursday reported that Kansas City Southern was expected to ditch the agreement with Canadian Pacific. On Friday, Canadian Pacific said it remains ready to re-engage with Kansas City Southern. Canadian Pacific had earlier decided to hold firm on the terms of its agreed-upon deal with Kansas City Southern.

Kansas City Southern shareholders will get $325 a share based on Canadian National's May 13 offer, comprising $200 in cash and 1.129 shares of Canadian National stock for each Kansas City Southern share, the companies said. The companies said Kansas City Southern's preferred shareholders will get $37.50 in cash for each preferred share. Kansas City shareholders are expected to own about 12.6% of the combined company, they added.

The companies said they are confident in their ability to obtain regulatory approvals, including from the U.S. Surface Transportation Board and the Federal Economic Competition Commission and Federal Telecommunications Institute in Mexico.

Canadian Pacific said it would proceed with its application with STB to seek the board's authority to "control KCS and its U.S. rail carrier subsidiaries." The company has already received preliminary regulatory approval for the deal.

Canadian Pacific had agreed in March to pay what was then worth $275 a share -- 0.489 of its shares and $90 in cash. (The exchange ratio was set before Canadian Pacific's recent five-for-one stock split.) The offer was worth about $25 billion when it was unveiled.

In its sweetened proposal, Canadian National agreed to add more stock and cover the $700 million breakup fee Kansas City Southern would owe Canadian Pacific for walking away from their existing agreement. If an agreement with Canadian National ultimately fails to get approval from regulators, the Canadian company would also owe Kansas City Southern a $1 billion reverse breakup fee.

(END) Dow Jones Newswires

May 21, 2021 12:23 ET (16:23 GMT)

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