Canadian National announced this week an offer to acquire Kansas City Southern in a cash-and-stock transaction valued at $33.7 billion, or $325 per share. The offer, submitted in a letter to KCS’s board of directors, follows a $29 billion offer from Canadian Pacific Railway in March to buy the nation’s smallest Class I railroad.
Under the terms of the proposal, following closing into a voting trust, KCS shareholders will receive $200 in cash and 1.059 shares of CN common stock for each KCS common share. Based on the March 19, 2021, closing price of CN shares, CN’s proposal is valued at $325 per KCS share.
The offer represents a 21% improvement over the current value of KCS’ agreement with CP, CN said in a release.
In the proposal submitted to KCS’s board of directors, CN President and CEO JJ Ruest said combining the companies offers greater choice and efficiencies for customers. He added that CN has long admired KCS’s customer-focused vision and commitment to safety, service and performance.
As with the proposed CP/KCS merger, a CN/KCS alignment would create a link from Canada to Mexico, although some lines overlap.
“CN is ideally positioned to combine with KCS to create a company with broader reach and greater scale, and to seamlessly connect more customers to rail hubs and ports in the U.S., Mexico and Canada,” Ruest said. “CN and KCS have highly complementary networks with limited overlap that will enable them to accelerate growth in single-owner, single-operator, end-to-end service across North America. With safer service and better fuel efficiency on key routes from Mexico through the heartland of America, the result will be a safer, faster, cleaner and stronger railway.”
Following the announcement, CP filed a letter by attorney David L. Meyer with the Surface Transportation Board saying it should not consider CN’s proposal, that it “is illusory and inferior to the proposed CP/KCS transaction, and that a CN/KCS transaction would be contrary to the public interest given its adverse impacts on competition and other serious concerns.”
Meyer added that the only combination involving KCS that is in the public interest is the one that CP has proposed, and which has already garnered support from over 400 shippers and other stakeholders. CP contends that a CN/KCS combination “would reduce competitive options for countless shippers.”
On Friday, CP filed statements from 416 shippers and stakeholders supporting the CP/KCS merger.
Proposed mergers are subject to STB approval.