KCS Delays Vote on $33.6 Billion Rail Takeover Bid
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A shareholder vote on the proposed $33.6 billion acquisition of Kansas City Southern by Canadian National Railway has been delayed until Sept. 3 to provide time for government officials to rule on whether CN can operate KCS while the deal is under federal review.
KCS on Aug. 19 convened and then quickly adjourned a special shareholders meeting during which a vote was expected to give the U.S. Surface Transportation Board time to rule on a joint voting trust application filed by the two railways. The trust would acquire and operate KCS during the STB’s extended review of the deal. Without that approval, the deal could fall apart.
The STB has said it expects to have a decision by Aug. 31.
In a joint statement announcing the meeting postponement, the railroads said, “KCS and CN are confident that the voting trust meets all the standards and the public interest test set forth by the STB and believe that it should be approved.”
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It’s the latest step in the multibillion-dollar bidding war between CN and rival Canadian Pacific for control of the smaller but strategically valuable KCS, the smallest Class I freight railroad but the only one with extensive track and intermodal operations deep into Mexico and throughout Texas and the Midwest.
The new U.S.-Mexico-Canada trade agreement is expected to lift cross-border trade, and manufacturing among the three nations is expected to accelerate.
If regulators derail CN’s bid, CP could renew its earlier $31 billion offer. The railway in March offered $25 billion for KCS, but was outbid by its rival. However, CP believes its offer is more likely to win regulatory approval, and has made that case to KCS shareholders. So far, KCS leaders and investors have favored CN’s higher offer.
Merger rules STB adopted in the late 1990s have never been tested. The regulations were adopted after a series of rail mergers during that era that left the North American freight rail industry with six mega-carriers that split up much of the country by geographical region. The rules state STB will only approve a merger among the six carriers if competition is enhanced and the public interest is served. The board has said it also will consider whether a proposed deal would destabilize the industry and prompt additional mergers.
Leaders from both CP and CN insist their offers would enhance competition and provide customers with better freight movement across North America. At the same time, CN has launched a public relations effort to convince the STB that the proposal meets the high scrutiny of the new merger rules.
Shippers have expressed in writing to STB their concerns about the CN/KCS deal. The American Chemistry Council, a Washington, D.C., trade association that represents the chemical industry, in late May urged the STB to look very closely at the proposed merger over competition issues.
Jahn
“We are concerned that unless the STB takes the necessary steps to put appropriate safeguards in place and to shore up competition between railroads, any merger could have a negative impact on manufacturing in the U.S. — and the broader economy,” council President Chris Jahn said in a statement.
Complicating matters is an executive order from President Joe Biden that calls for more competition in many sectors of the economy, including freight railroads. The order calls on STB to require track owners to provide rights-of-way to passenger trains and strengthen requirements for fair treatment of freight companies.
CP officials maintain that the CN deal is anti-competitive since KCS and CN operate hundreds of miles of parallel track connecting the Midwest to the Gulf Coast. They believe the deal would eliminate a shipping option for many customers. CN has said it can address some of these issues by selling 70 miles of track it operates between New Orleans and Baton Rouge, and also by keeping connections with other railroads open and available to competitors.
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