USA: Kansas City Southern has agreed to reopen discussions with Canadian Pacific, after its Board of Directors determined that CP’s latest offer could potentially lead to a superior proposal when compared to its current merger agreement with Canadian National.
Having originally agreed a merger with KCS in March, CP was rebuffed on May 21 when the smaller railroad entered into an alternative agreement with CN, even though the latter potentially faced more regulatory hurdles on competition grounds.
CP submitted a revised proposal on August 10, which envisaged a cash and stock transaction valued at US$300 per KCS share, but this was initially rejected as being less than the CN package worth around US$325 per share. However, the CN offer was thrown into doubt on August 31 when the Surface Transportation Board rejected a CN-KCS application for the smaller railroad to be placed into an independent voting trust pending regulatory approval of the planned merger.
KCS announced on September 3 that it was again postponing the special meeting of shareholders that had been called to vote on the CN deal. That had originally been scheduled for August 19, but was delayed until September 3 pending the STB ruling on the voting trust. The meeting has now been rescheduled for September 24.
On September 4 KCS announced that having taken legal and financial advice it intended to provide CP with non-public information and ‘engage in discussions and negotiations’, although for now it remains bound by the terms of the CN merger agreement. The railroad emphasised that the KCS board ‘has not determined that CP’s proposal in fact constitutes a Company Superior Proposal as defined in the merger agreement with CN’, noting that ‘there can be no assurance that the discussions with CP will result in a transaction’.
BfA Securities and Morgan Stanley are serving as financial advisors to KCS, while Wachtell, Lipton, Rosen & Katz, Baker & Miller, Davies Ward Phillips & Vineberg, WilmerHale, and White & Case are acting as legal counsel.
- Read more about STB and the CN-KCS merger application in the September 2021 issue of Railway Gazette International magazine.
