CP, CN Battle For Kansas City Southern Heats Up

A Kansas City Southern freight train at Lost Gap, Mississippi. Photo by Steve Barry. 

CP, CN Battle For Kansas City Southern Heats Up

By Justin Franz

WASHINGTON — Canadian National submitted a notice of intent with the U.S. Surface Transportation Board on Wednesday to acquire Kansas City Southern should its board accept its surprise merger offer. 

Meanwhile, Canadian Pacific, which inked a deal to merge with KCS a month ago, said that if the KCS board were to accept CN’s offer and the STB were to approve it, the deal would “destabilize” the North American rail network and set off a final round of Class I railroad consolidation. 

The war of words between the two Canadian Class Is erupted just a day after CN announced that it wanted to buy KCS for $33.7 billion. CP has called the proposal “inferior,” but the KCS board did not immediately dismiss it and stated that it would properly evaluate the offer. In a press release on Wednesday morning, CN stated that it would create a “plain vanilla voting trust,” just like the one CP is establishing, that would oversee KCS while awaiting STB approval. 

“CN is confident that its proposed combination is in the public interest,” officials wrote. 

In its filing, CN stated that it would ask the STB to use the merger rules it drafted back in 2001 to judge the combination. In the early 2000s, following a flurry of mergers in the 1990s, the STB instituted a brief moratorium on mergers while it came up with a new set of rules to ensure that any combinations that did occur in the future were in the public’s interests. Those rules apply to all Class Is but KCS. CP has asked the STB to use the old rules in considering its proposal.

Shortly after CP and KCS announced their plans to merge, analysts said of all the potential Class I combinations, it was the only one that could probably occur without forcing other railroads to merge. On Wednesday, CP stated that if CN and KCS were to merge, it would be forced to seek out another Class I partner. 

“Completion of a CN acquisition of KCS would create tremendous strategic pressure for CP to find a way to expand its market reach through further consolidation,” attorneys wrote. 

This article was posted on: April 21, 2021