Canadian Pacific and Canadian National both reacted positively Thursday evening to a Surface Transportation Board decision allowing CP to place Kansas City Southern into a voting trust as part of its merger plans. CP calls it a “critical milestone” in its bid, while CN says it is encouraged the voting trust that is part of its competing offer for KCS will receive similar approval.
CEO Keith Creel said in the Canadian Pacific statement that the STB decision allows the railroad to proceed “full steam ahead” on its merger plans. ““We are continuing to prepare our formal merger application and proxy filing for a shareholder vote in the near future.” The railroad explains that to complete the move to a voting trust, the $29 billion CP-KCS deal must be approved by shareholders from both companies and closing conditions must be completed. CP then would acquire KCS shares and place them into the voting trust.
CN’s statement, meanwhile, said the STB’s decision on CP “applied the same public interest factors that CN stated should apply to both Voting Trusts. For the reasons given in the STB’s decision, CN is confident that the STB will reach the same decision with respect to the identical Voting Trust put forward for CN’s proposed acquisition of KCS. Approving both Voting Trusts will allow KCS to choose the bid it judges to be best for its shareholders.” CN has made an unsolicited $33.7 billion offer for KCS.
The STB’s unanimous decision issued earlier Thursday [see “STB approves Canadian Pacific request …,” Trains News Wire, May 6, 2021] came despite concerns from the U.S. Justice Department that the move might alter the company’s actions and keep KCS from being effectively removed from the voting trust if the merger is rejected [see “Justice Department questions structure …,” News Wire, April 12, 2021]. Thursday’s decision noted the use of voting trusts is “a long-standing practice” and that there was “no significant risk that the financial strength or operational capabilities of Kansas City Southern and Canadian Pacific would be compromised.”
CN also announced in a Friday press release that it has gathered another 100 letters of support for its bid for KCS, bringing the total to more than 800.
— Updated at 7:35 a.m. Friday morning with CN release on letters of support.
Voting trusts have long been used for this purpose. If the STB later rejects the merger, KCS will have to be sold. This is a low risk for CP, but higher for CN, which could have to sell KCS for a significant loss.