UPDATE: Kansas City Southern Accepts Canadian National Offer

Kansas City Southern says it will accept Canadian National’s $33.6 billion offer; Canadian Pacific says it will not pay more. Photo Courtesy of CN.

UPDATE: Kansas City Southern Accepts Canadian National Offer

Updated: May 13, 10:45 p.m. EST

By Justin Franz

KANSAS CITY — Kansas City Southern announced late Thursday that its board was accepting Canadian National’s offer to buy the Class I for $33.6 billion. 

The news came hours after the Wall Street Journal reported that CN was preparing to sweeten its offering to KCS and pay an additional $700 million to cover a breakup fee KCS will owe Canadian Pacific for backing out of its merger plans. CP now has five days to make a better offer, although it had previously said it wouldn’t pay more than the $29 billion it’s already offering because it believed the U.S. Surface Transportation Board would never approve a CN-KCS combination. 

“KCS has notified CP that it intends to terminate KCS’s merger agreement with CP and enter into the definitive agreement with CN, subject to CP’s right to negotiate amendments to the merger agreement for at least five business days and the KCS board’s further determination as to whether any such amendments would cause the CN proposal no longer to constitute a ‘Company Superior Proposal,’” the railroad wrote. 

Not long after the announcement, CP officials reiterated that it believed the STB would never greenlight a CN-KCS merger because of the overlap of the two systems in the Midwest. 

“As we’ve said repeatedly, we are not going to enter into a bidding war. Our mutually negotiated agreement with KCS represents compelling short-term and long-term value for shareholders that is actually achievable,” CP officials said. “We will respond to KCS within the allotted time.”

The decision by KCS to accept CN’s offer could result in a bidding war or it could result in something even more drastic: it could be the beginning of the long-awaited — or feared — final round of consolidation among North America’s Class I railroads. 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. In April, 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: May 13, 2021