KCS board backs CN merger proposal, cites possible shareholder meeting change

It didn’t take long for Kansas City Southern’s board to consider Canadian Pacific’s sweetened merger offer.

Just two days after CP presented the higher bid, KCS’ board determined it doesn’t constitute a “superior proposal” to CN’s competing bid and could not reasonably be expected to lead to a superior proposal. The board came to that conclusion following a “careful and thorough review” in consultation with outside financial and legal advisors, KCS officials said in a press release.

“The KCS board reaffirms its recommendation to KCS shareholders to vote in favor of the pro-competitive, end-to-end merger with CN, which will create the premier railway for the 21st century and offer unparalleled opportunities and benefits for customers, employees, shareholders, the environment and the North American economy,” they said. “The board recommends shareholders vote for the pending merger with CN.”

CN leaders applauded the board’s decision, which they believe reiterates that the Class I’s merger offer is superior. They also recommend that KCS stockholders vote in favor of the combination.

“CN and KCS are committed to moving forward to create the premier railway for the 21st century. Together, we will enhance competition, drive economic growth and realize the benefits of a fully end-to-end transportation network connecting North America,” said CN President and Chief Executive Officer JJ Ruest. “We look forward to continuing to work with KCS to deliver this compelling combination to both companies’ stakeholders.”

However, the special stockholders meeting KCS has scheduled for Aug. 19 to vote on the merger proposals will be postponed if the Surface Transportation Board (STB) does not issue a ruling on the CN-KCS voting trust by the end of business on Aug. 17. The STB recently announced it expects to issue a ruling by Aug. 31.

The postponement would provide shareholders and the board more time to receive and consider the STB decision, KCS officials said. If the meeting is adjourned, a new date will be announced soon, they added.

CP leaders welcomed the news about a potential shareholder vote delay. CP has filed a proxy statement asking stockholders to vote against the proposed CN-KCS combination when the special meeting is held.

“We have always maintained KCS stockholders should have all relevant information, including the STB decision on the CN voting trust, to be able to make an informed decision, avoid being locked into the CN-KCS deal and preserve the ability to consider a better alternative proposal,” CP officials said in a statement. “We are confident that the STB will take the time needed to review the myriad of issues and concerns the CN voting trust raises.”

Once the STB rules on the CN voting trust, CP’s offer will be deemed superior since the CP-KCS combination already has regulatory certainty, they said.

In addition, CP leaders commended proxy advisor Institutional Shareholder Services Inc.’s (ISS) revised recommendation that KCS stockholders abstain from voting on the CN-KCS proposal. ISS changed its recommendation after KCS announced the special meeting might be adjourned.