CN makes 'superior' offer to acquire Kansas City Southern

Editor's note: This story has been updated with KCS' response.

CN today announced that it has made what it characterizes as a superior proposal to combine with Kansas City Southern in a cash-and-stock transaction valued at $33.7 billion, or $325 per share.

"Together, CN and KCS will create the premier railway for the 21st century, seamlessly connecting ports and rails in the United States, Mexico and Canada and providing superior service, enhanced competition and new market access to move goods across North America efficiently and safely," according to a CN press release issued this morning.

The offer comes weeks after Canadian Pacific and KCS announced they've entered a merger agreement in which CP would acquire KCS stock in a cash transaction worth $29 billion, including about $3.8 billion of outstanding KCS debt. Upon STB approval, CP would acquire control of KCS. The new railroad would be called Canadian Pacific Kansas City (CPKC).

In a statement, KCS officials said the board has received CN's proposal and would evaluate it in accordance with the terms of KCS' merger agreement with CP. The KCS board has not made any determination with respect to the CN offer, KCS officials said.

Under the terms of CN’s proposal, following the closing of a voting trust, KCS shareholders would receive $200 in cash and 1.059 shares of CN common stock for each KCS common share. Based on yesterday’s closing price of CN shares, CN’s proposal is valued at $325 per KCS share. This represents an implied premium of 45% when compared to KCS’ unaffected closing stock price on March 19, 2021, and an 21% improvement over the current value of KCS’ agreement with CP, CN officials said.

"We firmly believe our proposal is far superior to KCS’ existing agreement with CP because it offers superior financial value over the immediate and long-term, a more complementary strategic fit, greater choice and efficiencies for customers and enhanced benefits for employees and local communities," CN Chairman Robert Pace said in the release. "We look forward to engaging constructively with KCS’ Board and all relevant stakeholders to deliver this superior transaction."

A CN-KCS combination would "create a company with broader reach and greater scale to seamlessly connect more customers to rail hubs and ports in the United States, Mexico and Canada," CN President and Chief Executive Officer JJ Ruest said. "CN and KCS have highly complementary networks with limited overlap that will enable them to accelerate growth in single-owner, single-operator, end-to-end service across North America. With safer service and better fuel efficiency on key routes from Mexico through the heartland of America, the result will be a safer, faster, cleaner and stronger railway."

Additional information about the proposal is available here.