The respective pursuits of Class I railroad carrier Kansas City Southern (CN) by Canadian Class Is CP and Canadian National (CN) appears to have reached the end of the line, with KCS announcing on September 12 that its Board of Directors has indicated that the revised offer submitted by CP is a “Company Superior Proposal.”
KCS officials said the as per the terms of the CP proposal, each share of KCS stock would be exchanged for 2.884 common shares and $90 in cash, adding that KCS preferred stock holders would receive $37.50 for each share held. CNBC reported that the total value of the deal is $31 billion in a cash-and-stock acquisition.
The company also noted that the offer proposal is binding on CP and can be accepted by KCS any time prior to 5 PM ET on September 20, with the transaction subject to approval by the stockholders of CP and KCS, receipt of regulatory approvals and other customary closing conditions.
As for CN, KCS said it has told CN “it intends to terminate KCS’s merger agreement with CN and enter into the definitive agreement with CP, subject to CN’s right to negotiate amendments to the merger agreement for at least five business days and the KCS Board’s further determination as to whether any such amendments would cause the CP proposal no longer to constitute a ‘Company Superior Proposal.’”
CNBC reported that should Canadian National come up short in acquiring KCS, it would receive a $700 million break-up fee from KCS and would be reimbursed for another $700 million it paid KCS to pass on to Canadian Pacific as a break-up fee for terminating the deal they in place in March. And it added that CP said it will cover the cost of this $1.4 billion that KCS would owe CN.
As previously reported, shortly after the August 31 unanimous decision issued by the Surface Transportation Board (STB), which rejected the use of a voting trust between Canadian National Railway (CN) and Kansas City Southern (KCS) and hindered the chances of the $33.6 billion deal being completed, the other Class I railroad north of the border, Canadian Pacific (CP) said it was “ready to re-engage” with the KCS board of directors.
CP initially made an offer to acquire KCS in March 2020, when it announced it was acquiring KCS for $29 billion, in a deal that it said, at the time, would establish the first freight railway connecting the United States, Canada, and Mexico. But that deal was squelched when CN last April, making what it called a “superior proposal.” That CN proposal was comprised of a cash-and-stock offer to acquire KCS for $33.7 billion, or $325 per share, which, it said, marked a 21% premium over the proposed CP offer, coupled with an expected EBITDA close to $1 billion annually, driven largely by the conversion of truck traffic, and combined annual revenues in excess of $13 billion.
CP said its revised $31 billion offer recognizes the premium value of KCS and also provides regulatory certainty, adding there is a September 12 deadline for this offer.
The Calgary-based carrier also observed that the STB’s rejection of the CN and KCS joint motion for approval for the use of a voting trust demonstrated that the “CN-KCS merger proposal is illusionary and not achievable.” What’s more, it added that the STB has already approved CP’s use of a voting trust sand also affirmed CP-KCS’s waiver for the new pro-merger rules it adopted in 2001.
As for KCS, in a statement issued on September 4, it said that its Board of Directors, following consultation with its outside legal and financial advisors, unanimously determined that the new CP proposal could reasonably be expected to lead to a “Company Superior Proposal” as defined in KCS’s merger agreement with CN.