CP sweetens offer to acquire KCS

Canadian Pacific has upped the ante in its competing attempt to acquire Kansas City Southern by issuing a new offer it’s characterizing as superior, achievable, pro-competitive and strategic.

In a letter sent to KCS’ board, CP President and Chief Executive Officer Keith Creel describes the Class I’s new offer, which is a stock and cash transaction representing an enterprise value of about $31 billion. The offer values KCS at $300 per share, representing a 34% premium based on the CP stock closing price on Aug. 9 and KCS unaffected stock closing price on March 19, 2021.

After CP-KCS would close into a voting trust, common shareholders of KCS would receive 2.884 CP common shares and $90 in cash for each share of common stock held. The proposed transaction includes the assumption of $3.8 billion of outstanding KCS debt.

The new proposal includes improved terms to those agreed to in the CP-KCS merger pact the railroads entered into on March 21, CP officials said in a press release. They are substantially similar to those in the CN-KCS merger agreement, but offer significantly higher regulatory certainty at the Surface Transportation Board (STB) and significantly higher value, CP officials added.

“We believe that our offer is superior to the proposed CN merger due to the greater regulatory and value certainty it provides KCS stockholders. CP has a clear path to closing with STB voting trust approval (a condition CN has still not been able to satisfy) already in hand,” Creel wrote in the letter to KCS’ board. “Furthermore, the STB has affirmed that the pro-competitive CP-KCS combination would be evaluated under the pre-2001 STB merger rules, unlike the CN-KCS combination which would be scrutinized under the more stringent STB merger rules adopted in 2001.”

During a press conference held early this morning, Creel said the new offer includes synergies that total about $1 billion, driven by grain and intermodal shipper gains. The proposal offers strategic value and vision, a strong rationale and a total value-creation opportunity for KCS shareholders, he said.

“Our offer is pro-competitive — it’s all about winners. There are no losers,” Creel said. “It’s the only combination that can gain approval in today’s world.”

CP plans to approach a majority of KCS shareholders to stress what the CP-KCS deal offers prior to the virtual special stockholders meeting to be held Aug. 19 during which they will vote on the proposed CN-KCS combination. KCS shareholders need to “speak up and let the board know” that CP’s new proposal is a superior and certain offer, said Creel.

However, CN leaders believe their agreed-upon transaction with KCS — which implies a total enterprise value of $33.6 billion — remains superior, and is the best option for both companies’ stakeholders to enhance competition and provide shippers new service options.

“Together, CN and KCS would create the premier railway for the 21st century, connecting ports in the United States, Mexico and Canada to expand North American trade and power economic prosperity,” CN officials said in a prepared statement. “We will continue to take the necessary steps to deliver the many compelling benefits of this transaction to CN and KCS stakeholders.”

The CN-KCS voting trust application is currently under review by the STB.

“CN and KCS are confident that the voting trust meets all the standards set forth by the STB and believe that, after a fair and thorough review by the STB, it should be approved,” CN officials said. ”KCS shareholders will receive the merger consideration immediately upon the closing of CN’s voting trust.”

In a statement, KCS officials said the railroad's board will evaluate CP’s proposal in accordance with the terms of its merger agreement with CN and will respond in due course. The board hasn't yet made any determination with respect to CP’s proposal, they said.