Kansas City Southern has backed a softened $ 34 billion bid from Canadian National, a blow to rival Canadian Pacific, as the bidding war for the rail operator heats up.
CN offered to pay KCS shareholders $ 200 in cash and 1,129 of its shares, from $ 200 in cash and 1.059 CN common share.
The overall transaction value remains unchanged: KCS shareholders will still receive $ 325 a share, but CN’s higher share reflects a decline in the Montreal-based rail group’s share price.
KCS, which had already agreed to be acquired by CP for $ 29 billion including debt, is expected to pay a fee of $ 700 million to break the deal.
Either merger would create the first railroad to pass through Canada, the United States and Mexico, a route expected to see increased traffic when North American economies recover from the coronavirus pandemic.
“After consulting with the company’s outside legal and financial advisors, the KCS Board of Directors determined that CN’s revised proposal was a ‘Superior Company Proposal’ as defined in the KCS Merger Agreement with the Canadian Pacific Railway, ”KCS said in a statement.
CP has five days to come back with a higher bid, which should at least fill the roughly 20 percent premium offered by CN in what has become a hotly contested takeover battle.
CP said it remained confident its offer would eventually prevail, as it said the merger with CN would face significant regulatory challenges.
“It’s no surprise that CN is increasing its offering, and this only underscores CN’s recognition of the significant regulatory risks / challenges associated with its anti-competitive offering,” CP said in a statement.
“The Surface Transportation Board has already approved CP’s use of a voting trust for its pro-competitive combination with KCS,” he added.
The race to buy the smallest of the seven Class 1 rail groups that serve the North American freight market is the boldest attempt to consolidate the industry since CSX and Norfolk Southern acquired Conrail in 1999 and split it up. between them.
The agreement comes one year after the United States-Mexico-Canada Trade Agreement replaced the North American Free Trade Agreement, further raising hopes for a boom in cross-border trade.
CN has been on the charm offensive since playing for KCS, removing ads and creating a website called Continent Connected to garner support for his candidacy.
“We are the best deal, the best partner, the best railroad and the best solution for KCS, and we are pleased that the KCS Board of Directors has recognized the superiority of our proposal,” Robert Pace said Thursday, Chairman of the Board of Directors of CN.
