CN wins battle for Kansas City Southern, setting stage for first big U.S. rail merger in decades - The Globe and Mail

Canadian National Railway Co. CNR-T emerged as the victor in the takeover battle for Kansas City Southern
KSU-N on Friday, beating rival Canadian Pacific Railway Ltd. and setting the stage for the first major U.S. railway merger in more than 20 years.

The Missouri-based railway said it has accepted CN’s US$29.8-billion offer and terminated a US$25.2-billion agreement it made with CP in March.

KCS’s acceptance of CN’s offer on Friday turns the focus to the Surface Transportation Board, the U.S. regulator that holds the fate of the companies in its hands.

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The regulator must first approve the independent voting trust in which CN plans to hold KCS shares while awaiting the STB to complete its review of the takeover itself. A decision on the trust is expected in July, while a ruling on the takeover could take until late 2022 or early 2023, CN said. The deal also requires approval by the Mexican regulator and a majority of KCS shareholders.

The takeover would form the first railway that links the three North American countries and give CN access to key ocean and river ports in the southern U.S., Gulf of Mexico and Atlantic and Pacific Coasts of Mexico. KCS’s network, which runs south from the U.S. Midwest, reaches deep into the Mexican petroleum and automotive industrial regions.

KCS employs 6,500 people who run an 11,400-kilometre network. CN is Canada’s largest railway, with 24,500 employees and 32,000 kilometres of track in Canada and the United States. CN’s network spans Canada and extends south to the U.S. Gulf Coast.

JJ Ruest, CN’s chief executive officer, said in a statement he is “thrilled” by KCS’s acceptance of CN’s offer. “I am confident that with KCS’s experienced and talented team we will meaningfully connect the continent – enhancing competition, offering more choice for customers, and driving environmental stewardship and rewarding shareholders,” Mr. Ruest said.

Patrick Ottensmeyer, KCS’s CEO, said the combined routes will bring revenue growth and new opportunities for customers.

CN’s offer is worth US$325, or US$200 in cash and 1.126 shares of CN stock. This tops CP’s offer of US$275, or US$90 in cash and 2.445 CP shares.

CN also agreed to reimburse KCS for the US$700-million KCS will pay CP to terminate the earlier deal. Additionally, CN has agreed to pay KCS C$1-billion if the voting trust proposal is rejected by the STB.

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Keith Creel, CP’s chief executive officer, refused to raise CP’s bid, calling CN’s offer “fantasy money” that carried a heavy debt burden. He has repeatedly cast on doubt CN’s ability to win approval from the U.S. regulator, for the trust and the takeover.

Voting trusts are intended to preserve the independence and operation of a railway during a takeover’s regulatory process. CN and CP named former KCS CEO David Starling to run their respective trusts.

If the takeover is rejected by the STB, CN would sell KCS out of the trust.

In a letter to the STB on Friday morning, Mr. Creel said he is ready to make a new offer to KCS should the CN-KCS voting trust fail to receive approval. CP’s plan for a voting trust has already received STB approval.

“CP anticipates being available to engage with KCS to enter into another agreement to acquire KCS. CP expects that such an agreement would be in substantially the form of the merger agreement previously entered into by CP and KCS,” Mr. Creel said.

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https://news.google.com/__i/rss/rd/articles/CBMieGh0dHBzOi8vd3d3LnRoZWdsb2JlYW5kbWFpbC5jb20vYnVzaW5lc3MvYXJ0aWNsZS1jbi13aW5zLWJhdHRsZS1mb3Ita2Fuc2FzLWNpdHktc291dGhlcm4tc2V0dGluZy1zdGFnZS1mb3ItZmlyc3QtYmlnLXVzL9IBAA?oc=5

2021-05-21 15:06:42Z
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