MONTREAL — Canadian National is expected to sweeten its offer to acquire Kansas City Southern, the Wall Street Journal reported today.
CN would, at a minimum, pick up the tab for the $700 million breakup fee that KCS would owe Canadian Pacific for backing out of their friendly $29 billion deal, the newspaper said, citing people familiar with the matter.
CN and KCS officials have been negotiating a potential deal since April 24, four days after CN announced its $33.7 billion bid for the cross-border railway. The KCS board has set a deadline of this week for CN to submit a final offer based on information it gleaned from talks with KCS, according to independent analyst Anthony B. Hatch.
The KCS board will meet next week to make a decision on CN’s bid, Hatch says. Based on the merger agreement, CP would then have five days to respond to CN’s offer.
CP CEO Keith Creel has said his railroad can’t win a bidding war with CN [see “Canadian Pacific can’t win a KCS bidding war …,” Trains News Wire, April 29, 2021]. But Hatch says CP could potentially tweak its offer to KCS shareholders by increasing the cash payout and reducing the shares investors would receive in the combined CP-KCS.
Last month the KCS board said it appeared CN’s offer was superior to CP’s but that there was no guarantee that talks with CN would produce a merger agreement.
Last week the Surface Transportation Board approved CP’s request to put KCS into a voting trust while the merger is under regulatory review [see “STB approves Canadian Pacific request …,” News Wire, May 6, 2021]. CN is seeking board approval to put KCS into an identical trust.
Many observers expected the STB to ultimately decide which merger partner KCS might select based solely on the voting trust issue. KCS shareholders would receive their merger payment once the company is put into a trust. If the board declined to allow CN to put KCS into a trust, that would delay payment until after the merger review is completed sometime in late 2022, Hatch says. And that could tilt that balance in favor of CP, which already has voting trust approval.
With an STB decision on CN’s voting trust likely a month or so away, it’s possible KCS could select a merger partner next week. “Everybody thought the decision was going to be in the STB’s hands,” Hatch says. “We could actually see some news instead of dueling press releases.”
Spokespeople for CN and KCS did not immediately respond to email seeking comment on the Wall Street Journal report and the potential timing of a merger agreement between the railroads.
Fair? $33.7B + $700M > $29B. Like KCS board has any interest in “fairness”. It’s a business, it’s about money. It’s government regulators responsibility to ensure fairness of competition, not KCS’s.
Agree. It’s the government’s responsibility to tell CNR to take a hike.
To me it’s real simple. CNR got ICRR, so fair is fair, CPR gets KCS, end of discussion.