Canadian National Gives Up Bid For Kansas City Southern

Amid pressure from investors, CN officially announced that it would not try to change KCS’ mind; CP-KCS execute an official merger agreement. Photo by Steve Barry.

Canadian National Gives Up Bid For Kansas City Southern

By Justin Franz 

MONTREAL — Canadian National will not try to woo Kansas City Southern away from Canadian Pacific for a second time. 

Three days after KCS announced that it believed CP had made a “superior” offer and that its other suitor had five days to make a better one, CN officials announced that they would not be making another proposal. Ever since the U.S. Surface Transportation Board rejected a key part of CN’s proposal two weeks ago — seen by many as a move by the federal regulator to torpedo the merger — the railroad has come under intense pressure to drop the bid. This week, a major CN shareholder called for a special meeting to replace four members of the board of directors. That same shareholder has called for CN CEO JJ Ruest to resign. 

“We believe that the decision not to pursue our proposed merger with KCS any further is the right decision for CN as responsible fiduciaries of our shareholders’ interests,” Ruest said. “CN will continue to pursue profitable growth and opportunities for excellence as a leading Class I railroad, and we look forward to outlining more details on our strategic, operational and financial priorities in the near future.”

Not long after, CP and KCS officials announced that they had once again entered into a formal merger agreement where KCS would be sold to the Canadian road for $31 billion. Aside from the price, the deal looked similar to one inked back in March: the combined railroad would be called Canadian Pacific Kansas City; its global headquarters would be Calgary; and its U.S. headquarters would be Kansas City. CP’s current U.S. headquarters in downtown Minneapolis would remain an important outpost for the railroad, officials said. 

KCS will have to refund CN $700 million, a payment the Canadian road gave KCS back in the spring to break off its deal with CP. CP will refund KCS that money. 

“Our path to this historic agreement only reinforces our conviction in this once-in-a-lifetime partnership,” said CP President and Chief Executive Officer Keith Creel. “We are excited to get to work bringing these two railroads together. By combining, we will unlock the full potential of our networks and our people while providing industry-best service for our customers. This perfect end-to-end combination creates the first U.S.-Mexico-Canada rail network with new single-line offerings that will deliver dramatically expanded market reach for CP and KCS customers, provide new competitive transportation options, and support North American economic growth.”

While the STB was hesitant of a CN-KCS merger, it appears to be giving a green light to a CP-KCS combination, which even together will still be the smallest Class I railroad in North America. The STB has previously said it would judge a CP-KCS merger with an older set of rules and that it would allow CP to put KCS into trust. 

This article was posted on: September 15, 2021