By Julie Sneider, Senior Associate Editor
Canadian Pacific President and Chief Executive Officer Keith Creel yesterday said he has “high hopes” that the now on-again negotiations with Kansas City Southern will result in CP’s offer to acquire KCS will be deemed the “company superior proposal.”
The two Class Is restarted their merger discussions in recent days after KCS announced Sept. 4 its board unanimously determined the unsolicited proposal received from CP on Aug. 31 to acquire KCS in a cash and stock transaction — valued at $300 per KCS share — could be a superior proposal as defined in KCS's merger agreement with CN.
On Aug. 31, the Surface Transportation Board unanimously rejected CN’s plan to use a voting trust for its proposed acquisition of KCS. After that, CP reaffirmed its offer, originally submitted Aug. 10, to combine with KCS. CP has placed a deadline of Sept. 12 on that offer.
The STB’s decision clearly shows that the CN-KCS merger proposal is “illusory and not achievable,” CP officials said Sept. 5 in a prepared statement.
In a Sept. 8 question-and-answer session moderated by independent transportation analyst and Progressive Railroading columnist Tony Hatch at the North American Rail Shippers Association’s (NARS) annual meeting in Chicago, Creel said a CP-KCS combination would represent a unique value across the supply chain and, more important, for the U.S. rail network. The merger would unlock investment and growth, as well as stabilize “an industry that has been through some challenging times,” he said.
“Assuming we get a positive outcome, we are ready to go to work for the employees, for the shareholders — and for the customers so that we can create new markets so that they can grow their markets and take trucks off the road,” Creel said.
"The ability to… extend the market reach for all those short lines is going to be a powerful thing." — John Brooks, CP executive vice president and chief marketing officer cpr.caAlso speaking on stage at the NARS meeting with Creel was CP Executive Vice President and Chief Marketing Officer John Brooks, who talked about the “synergies” that would emerge from a combined CP-KCS network. Among them: growth opportunities for CP’s and KCS’ short-line and regional railroad partners.
“We see strong growth in that sector, and as I look at Kansas City Southern and the opportunity to grow with [their] short lines, there is a tremendous opportunity to allow this combined network to extend its reach to new markets,” Brooks said.
A few years ago, CP instituted a short-line and regional advisory group to uncover untapped business potential. The same thing could be done with KCS, he said.
“Kansas City Southern’s short-line and regional partners’ reach … has been held to the same physical footprint that Kansas City Southern is today, as are the Canadian Pacific short lines,” said Brooks. “The ability to bring those together and extend the market reach for all those short lines is going to be a powerful thing.”
As for the proposed merger’s timeline, Creel said CP has kept its application on file with the STB. If KCS ultimately determines that CP’s proposal is superior to CN’s offer, a new CP-KCS agreement would be signed and CP would file an amended application with the regulators. That could happen as soon as mid-October. CP would seek a 10-month schedule for the regulatory review, although Creel doesn’t think it would take that long.
“It’s truly an end-to-end combination,” he said of the proposed merger. “There is zero overlap. It meets [the STB’s] old and new rules’ standards. It protects and enhances competition. We believe that with those facts, and with a spirit of cooperation and working hard with Kansas City Southern, we should have the [combined] company together in early fourth-quarter 2022. It’s an aggressive schedule, but it’s certainly achievable.”
