Kansas City Southern Updates
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Kansas City Southern Railroad Agreed to Be It acquired by the competing Canadian Pacific for $ 31 billion, debt included, following the termination of its $ 34 billion deal with Canadian National, the culmination of a bitterly fought takeover battle that would create a single railroad between Canada and Mexico via the US.
The decision by the board of KCS to conclude an agreement with CP comes after U.S. regulators made it clear late last month that a proposed agreement between the Missouri group and CN is unlikely to win their approval.
KCS, the smallest of the seven Class 1 railroad operators that dominates a significant portion of U.S. freight activity, has long been considered the only asset a competitor in the heavily consolidated sector could acquire. The last major agreement took place in 1999, when CSX and Norfolk Southern took over and split Conrail among themselves.
CP and CN were at war for months because both wanted to try to take advantage of the revival of trade in North America after a new free trade agreement between Mexico, the USA and Canada.
CP only reached an agreement in March to buy KCS for about $ 29 billion, including debt. The deal, first reported by the Financial Times, was $ 275 per share worth $ 90 cash and the rest in CP stock.
CN later undermined the agreement with a cash-and-stock offering worth about $ 320 per share, giving the company a value of about $ 34 billion, including debt. The board of KCS approved the offer in May.
The pivot point in the six-month saga comes on August 31 when the US Surface Transportation Board rejected CN’s request to establish a temporary voting trust, through which shareholders in KCS would be paid before the transaction received regulatory approval.
The regulatory decision upset KCS investors, who became concerned that a merger with CN would eventually fail. It also led to the advice of the American group a new offer by CP, which KCS valued at $ 300 per share in cash and stock.
A joint KCS and CP would be the smallest of six rail operators in North America, while the merger with CN would be the third largest. The STB has previously approved CP’s voting trust.
CN is entitled to a termination fee of $ 1.4 billion. KCS will pay CN a $ 700 million termination fee and have to repay an additional $ 700 million to the Montreal company that was used to terminate an earlier agreement with CP.
CN will now shift its focus to the fight against a proxy fight launched by TCI, the UK hedge fund led by Chris Hohn, which seeks to replace the chief executive, chairman and four board members.
TCI, which is a major investor in CN as well as CP, criticized the management of CN for following KCS in the first place.
Jean-Jacques Ruest, head of CN, defends his decision to pursue KCS, rejecting Hohn’s attacks and accusations of poor management of the company.
“While we are disappointed that we will not be able to deliver the many compelling benefits of this transaction to our stakeholders, the decision to bid for KCS was a bold and strategic move that still resulted in positive outcomes for CN,” he said Tuesday. .
“We believe that the decision not to continue our proposed merger with KCS is the right decision for CN as the responsible trustee of our shareholder interests.”