The Canadian National railroad group has made a $ 33.7 billion offer on Kansas City Southern, including debt, as it seeks to derail the deal the US group made last month with Canadian Pacific Railway.
The Montreal-based company made a cash and stock offer valuing Kansas City Southern at $ 325 a share, about 21% more than the agreed offer Canadian Pacific Railway. However, it is susceptible to further regulatory scrutiny due to its size.
Under the agreement, Canadian National offered Kansas City Southern shareholders $ 200 in cash and 1,059 CN common shares. Canadian Pacific offered $ 90 in cash and the rest in their stock. To pay off the deal, CP announced it would issue 44.5 million new shares and raise $ 8.6 billion in debt.
Whoever wins the Canadian battle over Kansas City Southern, the smallest of the seven Class 1 railways that carry American freight, will strike the first major rail deal since 1999, when CSX and Norfolk Southern acquired Conrail and split it between them.
A person close to Kansas City Southern said the U.S. group would seriously consider the competing offer, but warned it would be a more difficult sale to the Surface Transportation Board, the U.S. rail freight regulator that will have to approve any combination.
A merger with either of the Canadian groups would establish the first North American railway crossing Mexico, the United States and Canada. Canadian National, announcing its proposal on Tuesday, said increasing its cash supply would give Kansas City Southern shareholders greater certainty and its proposal would reduce congestion and greenhouse gas emissions.
Canadian National and Canadian Pacific operate in the central and eastern United States, as do CSX and Norfolk Southern, while Union Pacific and BNSF operate in the west.
Kansas City Southern is the only operator with north-south operations with a network of routes stretching from Missouri to ports on both coasts of Mexico. It also owns a 50 percent stake in the Panama Canal Railway Company.
For the two Canadian companies, the agreement is a big bet on trade resumed after the approval last year of the US-Mexico-Canada trade agreement, which replaced the North American Free Trade Agreement.
Canadian National said the deal would allow the merged company to tap into an $ 8 billion market between the three countries, while intending to add more services at key points in the network such as as Laredo, Texas, southern Ontario and Detroit.
Jean-Jacques Ruest, general manager of Canadian National, said in a letter to the Kansas City Southern board of directors that the combination would generate $ 1 billion per year in synergies, mainly driven by new business rather than reduced costs. costs.
Bidding war for Kansas City Southern comes amid a a wave of mergers and acquisitions activity over the past 12 months, as companies that have thrived during the pandemic seek to acquire assets to strengthen their businesses.
Shares of Canadian National have risen 70% since lows in mid-March 2020, although the company fell 5.9% in Toronto after the announcement of its competing offer.