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UPDATE: Canadian Pacific Makes New Offer For Kansas City Southern

The new offer from Canadian Pacific is still lower than Canadian National’s bid but officials said it comes with more certainty of regulatory approval. Photo by Steve Barry. 

UPDATE: Canadian Pacific Makes New Offer For Kansas City Southern

Updated: Aug. 10, 9:30 a.m. MST

By Justin Franz 

CALGARY — Canadian Pacific has made a new bid for Kansas City Southern, just days before shareholders were expected to vote on whether or not to accept another offer from Canadian National. 

Rumors of a new bid began to circulate on Monday and were confirmed by CP early Tuesday morning. The new bid values KCS at $300 per share, about $20 lower than CN’s present offer, but one that CP officials said comes with a silver lining: a CP-KCS merger has a better chance of being approved by the U.S. Surface Transportation Board. 

CP and KCS had agreed to merge back in March but then a few weeks later CN got involved and offered more money for the Kansas City-based Class I. CP refused to increase its offer for KCS and eventually lost out on the bidding war. Some three months later, CP President and CEO Keith Creel said he stood by the decision not to initially up his company’s offer but that he still believes in a CP-KCS merger. 

“At the time of CN’s offer in May, we chose to not make a revised offer because we believed that engaging in a bidding war with CN would have been value destructive to CP shareholders, and we continue to stand by that decision as having been the right one,” he wrote in a letter to KCS shareholders on Tuesday. “However, we believe that now is the right time for us to re-engage with KCS, as the regulatory uncertainty of the proposed CN merger has placed KCS stockholders in the unfortunate position of having to vote on the proposed CN merger and, as a consequence of approving such proposal, eliminate KCS’ ability to consider superior offers, all the while not having any level of certainty with respect to whether the STB will approve CN’s use of a voting trust.”

The STB previously decided that it would allow CP to place KCS into a trust while the federal board reviews the deal. It also stated that it would review the CP-KCS merger, which would result in a smaller railroad than a CN-KCS combination, under an older, less stringent set of rules. The board has not yet decided if it will let CN place KCS into a trust during the federal review, but it has said it will apply a harsher set of rules on determining the CN-KCS combination. 

A few hours after CP announced its new offer, KCS officials confirmed that they were evaluating it. CN officials also released a statement dismissing the new bid. 

“CN and KCS’ agreed transaction remains superior and the best option for both companies’ stakeholders to deliver on a combination that will enhance competition and provide new servicing options for customers,” CN officials wrote.

This story will be updated when more information becomes available. 

This article was posted on: August 10, 2021