CN Rail Walks Away From K.C. Southern, Ending Takeover War
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Canadian National Railway Co. declined to increase its offer for Kansas City Southern after a monthslong takeover battle, ceding to Canadian Pacific Railway Ltd. a prize that would create the first railroad spanning the U.S., Canada and Mexico.
Kansas City Southern terminated its $30 billion agreement with Canadian National and agreed to Canadian Pacific’s $27 billion merger proposal, according to a statement Sept. 15. The merger will need approval from shareholders, Mexican regulators and the Surface Transportation Board.
The Canadian National pact had begun to unravel last month when U.S. regulators rejected a key provision of the agreement. Kansas City Southern responded to the ruling on Sept. 12 by saying Canadian Pacific’s proposal was superior and giving its larger rival five business days to respond.
With the combination, Canadian Pacific would become the first railroad to operate in Canada, the U.S. and Mexico, where Kansas City Southern gets about half its revenue. The Canadian carrier will enlarge its network by 50% to 20,000 miles of track from Vancouver to Veracruz, Mexico.
Map of railroad network. (Bloomberg)
Kansas City Southern shares fell less than 1% in early trading in New York while U.S. shares of Canadian Pacific rose 1.3% and Canadian National’s gained 3.2%.
Canadian Pacific had reached a $25 billion deal for Kansas City Southern in March only to have it snatched away by Canadian National a couple of months later. Canadian Pacific sweetened its offer to $27 billion in August but was rejected.
That proposal became more attractive, however, after the U.S. Surface Transportation Board rejected Canadian National’s proposal for a voting trust to buy out Kansas City Southern’s shareholders while full approval was pending. The U.S. carrier has said it wouldn’t entertain any deal that lacked such a mechanism, which the board had already approved for Canadian Pacific.
Kansas City Southern will refund $700 million to Canadian National to terminate the March pact with Canadian Pacific and pay another $700 million for the agreement it ended on Sept. 14.
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