KANSAS CITY, Mo. – Two influential shareholder advisory firms say that Kansas City Southern shareholders should abstain from voting on the Canadian National merger proposal until federal regulators make a key ruling.
Institutional Shareholder Services and Glass Lewis, which advise large investment firms regarding proxy votes, have recommended that KCS shareholders abstain until after the Surface Transportation Board issues a decision on CN’s request to put KCS into a voting trust. Some 82% of KCS shares are held by institutional investors.
The STB on Tuesday said it would decide the matter by Aug. 31.
Institutional Shareholder Services previously had recommended that KCS shareholders approve the CN transaction. On Aug. 6, the company said the CN offer was “compelling.” And it said that while Canadian Pacific was soliciting votes against the CN deal, CP had not provided investors with a worthwhile alternative [see “Shareholder advisory firm says KCS investors should back CN deal,” Trains News Wire, Aug. 9, 2021].
That all changed on Tuesday, after CP sweetened its offer by $2 billion, to $31 billion. The KCS board on Thursday rejected CP’s bid, noting it was not a “superior proposal” to the $33.6 billion deal KCS reached with CN in May [see “KCS says Canadian Pacific’s latest merger offer falls short,” News Wire, Aug. 12, 2021].
The revised Institutional Shareholder Services recommendation comes after the KCS board on Thursday decided to reschedule an Aug. 19 shareholder meeting where investors were to vote on the CN merger deal. If the STB decision is not issued by the close of business on Aug. 17, the meeting will be postponed until the board releases its voting trust ruling.
Institutional Shareholder Services now says investors should back the delay and abstain from voting so that they can make a fully informed decision once the STB voting trust decision is issued.
Glass Lewis, in a recommendation today, wrote that “KCS shareholder interests would be best served by withholding approval of the CN transaction and instead voting to adjourn the special meeting. In our view, there is little, if any, reason for KCS shareholders to cast a binding vote on the CN transaction at this juncture, in the face of significant and unnecessary uncertainty that could potentially have substantial ramifications for KCS shareholders going forward, especially when much of the uncertainty should be cleared up in the coming days.”
KCS and CN are confident that the STB will approve the request to put KCS into a voting trust while the merger is under regulatory review.
CP increased its bid on Tuesday in the hopes that regulatory uncertainty would unravel CN’s merger agreement with KCS.
CP and KCS signed a merger deal in March, only to have CN swoop in with its higher bid. CP in May received STB approval to place KCS into a voting trust. The board also agreed to judge a CP-KCS combination under the less-stringent old merger rules, while the CN-KCS merger would be reviewed under the tougher rules adopted in 2001.
Glass Lewis said that “some investors may consider the CP offer currently has materially greater certainty with respect to regulatory approval, and they may reasonably be of the view that the probability/risk-adjusted values of the CN transaction and current CP proposal are effectively equal at this juncture.”
CN is offering KCS investors $25 more per share than CP’s latest bid.
Analysts say it’s unlikely that a CN-KCS merger would proceed if the STB denies the voting trust request.
— Updated throughout at 12:45 p.m. CDT to reflect recommendation from advisory firm Glass Lewis.
What doesn’t add up is the poiential cost increse to shipppers if this deal goes through, whether KCS marries CN or CP.
The bottom line is that one more independent carrier disappears in the jaws of a predator fish.
I have always admired KCs’s ability to stay out of the jaws of UP, NS or CSX. This road has built a whopping success out of its operations in the USa and Central America. It is The Railroad that Can. It provides great service snd, better yet, a healthy and, vibrant competition. This will be a wistful memory if The Route of the Southern Belle is swallowed up. The relentless drive for condolidaion will drive up prices to what for many will be unsustainable cost increases. For the economy, happy days may be here again, but with mergers such as this one, the skies above won’t be clear adain for John Q. Public.
Anyone think this whole thing could actually collapse with CP and CN feeling so burned out that they walk away to fight another day? Then, that eastern railroad that goes to Kansas City says “Hmm”.
this is getting curiouser and curiouser.
Yes Andrew it does seem strange. On Aug 6 th they say go for it now well maybe not yet. Almost looks like some things are not adding up.