CN receives notice of termination of KCS merger deal

CN announced today that Kansas City Southern has provided notice of termination of the previously announced May 21, 2021, definitive merger agreement with CN.

The notice was provided after the KCS board determined on Sept. 12 that an updated acquisition proposal from Canadian Pacific was "superior" to CN’s offer to merge with KCS. Today, CP and KCS announced they have entered into a merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately $31 billion, which includes the assumption of $3.8 billion of outstanding KCS debt.

In connection with KCS’ termination of the CN merger agreement, KCS will pay CN the $700 million cash "company termination fee," as well as the $700 million cash "CP termination fee refund" provided for in the CN merger agreement, CN officials said in a press release.

CN is also not obligated to pay any termination fees as a result of the termination of the CN merger agreement.

The termination notice from KCS follows the mutually agreed early termination of the match period provided for in the CN merger agreement. While CN continues to believe that a CN-KCS combination would have enhanced competition and delivered many other compelling benefits for stakeholders, there have been significant changes to the U.S. regulatory landscape since CN launched its initial proposal which have made completing any Class I merger much less certain, including an executive order focused on competition issued by President Joe Biden in July, CN officials said.

"While we are disappointed that we will not be able to deliver the many compelling benefits of this transaction to our stakeholders, the decision to bid for KCS was a bold and strategic move that still resulted in positive outcomes for CN," said CN President and Chief Executive Officer JJ Ruest. "We believe that the decision not to pursue our proposed merger with KCS any further is the right decision for CN as responsible fiduciaries of our shareholders’ interests."

Throughout the proposed merger process with KCS, CN made numerous unprecedented pro-competitive commitments to provide all market participants, railroads and customers with enhanced route choices, pricing transparency and a fair chance to compete, CN officials said.

Given comments made by the Surface Transportation Board in its decision on the joint CN-KCS voting trust application, CN firmly believes that no Class I merger with KCS should be approved without those public interest and enhanced competition commitments, CN officials said.

"CN will continue to actively participate in this important dialogue to ensure that all regulatory rules are enforced fairly, and customers do not suffer anti-competitive effects arising from a combination between Canadian Pacific and KCS," company officials added.

Meanwhile, TCI Fund Management Ltd., one of CN's largest shareholders, has formally started a proxy fight to replace the Class I’s chief executive officer and some board members over the failed attempt to acquire KCS.