Bow-out ends railroad bidding war

OMAHA, Neb. – After initially derailing this spring, Canadian Pacific’s acquisition of Kansas City Southern is back on track after Canadian National withdrew from the tender on Wednesday.

The deal, which would create the first railroad covering the United States, Canada and Mexico, could still be subject to close scrutiny by regulators at the federal Surface Transportation Board, which did not approve. no major rail mergers since the 1990s, but Kansas City Southern shareholders will be set to be paid once shareholders of both companies and Mexican regulators approve it, regardless of the Surface Transportation Board’s final decision.

The companies valued the cash and stock deal at $ 31 billion, including the assumption of debt.

“We are thrilled,” said Keith Creel, President and CEO of Canadian Pacific. “No boring times obviously, but he came to a conclusion where we had planned it at the beginning and we thought it would end eventually.”

Canadian Pacific triumphed in the bidding war even though it offered less than Canadian National’s $ 33.6 billion bid because federal regulators did not let Canadian National set up a voting trust to acquire and hold Kansas City Southern during their extended review.

The Canadian National will not leave empty-handed. Kansas City Southern pays its abandoned suitor a $ 700 million breakage fee for terminating its deal and will reimburse the Canadian carrier an additional $ 700 million it paid the US railroad for canceling the deal spring with the Canadian Pacific. Canadian Pacific will reimburse Kansas City Southern for these breach charges under their agreement.

Tenders have been going back and forth since Canadian Pacific Railway and Kansas City Southern first announced their merger deal in March.

Canadian National General Manager JJ Ruest said his railroad will focus on “profitable growth and opportunities for excellence.” Canadian National had come under pressure in recent weeks from a major investor to abandon the deal and work on its own performance.

The London TCI fund, which owns around 5% of the shares of Canadian National, has already announced plans to call a special meeting to appoint four new directors who would help choose a new CEO for the railway. A TCI spokesperson said he would continue to push for leadership changes.


Shares of all three railroads were higher after Wednesday’s announcements, with Canadian National posting the largest gains, with its stock closing up 2%. Kansas City Southern stocks closed 0.5% higher and Canadian Pacific Railway stocks rose nearly 1%.

For more than two decades, the rail industry has been stable, with two railroads in the western United States – BNSF and Union Pacific – two in the eastern United States – CSX and Norfolk Southern – – Kansas City Southern in the Midwest and the two Canadian railways that serve part of the United States. Regulators have said any merger involving two of the largest railroads generally must increase competition and serve the public interest to be approved.

The only recent deal involving any of these major railroads is the 2010 Berkshire Hathaway purchase of Warren Buffett from BNSF, but this deal has received less scrutiny as it was not from a merger of two rivals.

Creel said he expects the Surface Transportation Board to work to protect competition and the public interest when it considers the acquisition of Kansas City Southern by Canadian Pacific Railway, but he believes the accord will easily meet these standards as there is little overlap between the two railways and a lot of potential benefits.

“I don’t expect regulatory issues to get this deal approved,” Creel said.

Edward Jones analyst Jeff Windau agreed with the relatively straightforward regulatory review, but added that it would be interesting to see what sort of concessions Canadian Pacific and Kansas City Southern might have to make to address concerns raised by competitors and shippers.


Kansas City Southern was an attractive acquisition target as it was the smallest of the major railroads and the only one with direct lines to Mexico. The United States have all signed on.

Kansas City Southern President and CEO Patrick Ottensmeyer, who is in Mexico City to help move the process forward, said the deal “will benefit KCS and our employees by allowing us to be part of a growing continental business and truly North American ”.

The new railroad will also be well positioned to take advantage of companies that decide to move some of their manufacturing closer to their end markets in North America instead of depending so much on global suppliers.

“Railways are a vital part of the backbone of supply chains. And it will be a very unique franchise to drive some of these investment decisions,” said Ottensmeyer.

Executives of the two railroads do not expect this deal to lead to further consolidation in the industry in part because the Canadian Pacific-Kansas City Combined Railway will always be the smaller of the major railroads. , although it will include around 20,000 miles of track and employ around 20,000 people.

“We will uniquely create a historic network across the three countries that will not be replicated,” Creel said. “I think that stabilizes the network. This creates competition west of the Mississippi, east of the Mississippi, and Canada. This puts us on an equal footing.

Information for this article was provided by Josh Funk of The Associated Press and Thomas Black and Scott Deveau of Bloomberg News (WPNS).

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