The latest twist in a bidding war between two Canadian freight rail giants and the smallest Class 1 American railroad looks like it has finally been settled.
Kansas City Southern (KCS) said it had accepted a new offer from Canadian Pacific, after CP's competitor Canadian National hit a key regulatory stumbling block in recent weeks. The new bid from CP is about $31 billion, and it comes after the Surface Transportation Board had rejected CN's request to create a voting trust with KCS at the end of August.
The months-long tussle between CP and CN for bragging rights to serve Canada, the U.S. heartland and Mexico resulted in KCS accepting an offer from CP that was about $3 billion lower than the CN paperwork, but what the company declared was a superior offer.
In a statement Canadian National said it’s continuing to evaluate its options and “will make carefully considered decisions in the interests of all CN shareholders and stakeholders and in line with our strategic priorities.”
The Canadian Pacific initial offer in March, which was agreed to by Kansas City Southern, was countered shortly thereafter with a sweeter offer from Canadian National. The business romance suddenly blossomed in a new direction as KCS turned 180 degrees and starting making eyes with CN.
This new development caught the attention of the Surface Transportation Board and raised issues that went beyond an issue of overlapping tracks in Louisiana and the possibility of isolating CP within its Canadian lines with a smaller reach in the U.S.
Rail regulators, wary of less rail competition in the Midwest, rejected CN's proposal for a voting trust. The trust would have allowed KCS shareholders to be paid before the CN-KCS deal would even have received approval from the Surface Transportation Board. The trust was nixed by the STB on August 31st, which signaled to KCS-CN that final approval would be a tough sell. KCS then turned back to its first suitor, Canadian Pacific, which had the upper hand with a voting trust already approved by the STB.
The jilted suitor, Canadian National, is expected to receive $1.4 billion in breakup fees from the terminated deal.
The new CP-KCS would have a network of 20,000 miles spanning from Vancouver to Veracruz, Mexico. It would also allow Canadian Pacific to compete on a more level platform with rival Canadian National. CN already reaches from its Canadian roots down to the Gulf of Mexico at New Orleans. The only region where both CN and CP meet are, ironically, in Kansas City where Kansas City Southern is headquartered.