CP agrees with DOJ's concern that CN+KCS would be anti-competitive

Canadian Pacific officials said they agree with a U.S. Department of Justice (DOJ) filing with the Surface Transportation Board (STB) regarding CN's proposed use of a voting trust in connection with its proposed combination with Kansas City Southern.

CP concurs with the DOJ's objection to CN's application for proposed use of a voting trust on the grounds that a CN merger with KCS would pose greater risks to competition than the CP-KCS agreement, according to a CP press release.

The filing noted: "A CN-KCS transaction poses additional dangers to competition stemming from the potential elimination of direct, 'parallel' competition on routes served by both railroads, for example between Baton Rouge and New Orleans."

CN's proposed use of a voting trust would create "threats to competition [that] would be present immediately after the CN voting trust is consummated."

DOJ added: “[I]t is particularly important to protect" the incentives of CN and KCS "to compete where, as here, CN and KCS appear to compete head-to-head on multiple parallel routes."

The DOJ noted that the STB earlier this month approved the proposed CP-KCS voting trust.

"Notwithstanding this decision, the board should not permit the proposed CN voting trust because CN's proposed acquisition of KCS appears to pose greater risks to competition than the risks posed by a CP-KCS merger," the DOJ’s filing stated.

The full DOJ filing may be read here.

Meanwhile, CP announced today that that more than 130 additional stakeholders have filed statements with the STB supporting its merger with Kansas City Southern, bringing the total submitted to date to more than 680.

Last week, CN sweetened its offer to acquire KCS. Under terms of its revised proposal, CN now would exchange each share of KCS common stock for $200 in cash and 1.129 shares of CN common stock, implying a total enterprise value of $33.6 billion.

CN also has agreed to reimburse KCS $700 million in connection with a termination fee it would need to pay CP under their merger agreement if that deal is called off. As a result, KCS’ board has determined that CN’s revised proposal constitutes a “company superior proposal” as defined in KCS’s merger agreement with CP.

KCS notified CP that it intends to terminate their merger agreement and enter into a definitive agreement with CN. CP retains the right to negotiate merger agreement amendments for at least five business days, and KCS’ board still could make a further determination as to whether any such amendments would cause the CN proposal to no longer constitute a company superior proposal.