OMAHA, Neb. — Canadian Pacific is urging Kansas City Southern to reject Canadian National’s rival $33.6 billion takeover bid, but it still refuses to increase its own $25 billion bid.
Canadian Pacific maintained Thursday that Canadian National’s bid won’t be approved by regulators because it would hurt competition and add to rail congestion around Chicago, so CEO Keith Creel doesn’t see a need to increase its offer. Kansas City Southern officials didn’t immediately respond Thursday morning, but a week earlier they backed the CN offer.
“My view, CP’s view, has been and continues to be, the alternative is a deal that can’t be approved,” Creel said Thursday. “It’s not necessary to engage in a bidding war to match CN’s value, which is not achievable. There is no path to deal certainty. In fact, it’s a path wrought with deal uncertainty.”
Canadian Pacific had said combining Kansas City Southern and Canadian National would hurt competition because both those companies have rail lines that compete for business between the Midwest and the Gulf Coast. Canadian Pacific’s network connects to Kansas City Southern near its headquarters in Kansas City, Missouri, but those two railroads don’t overlap elsewhere.
Canadian National has said it doesn’t believe its offer would hurt competition, and it is confident it could address any competitive concerns later in the Surface Transportation Board’s review process. Canadian National officials didn’t immediately respond Thursday.
A week ago, Canadian National won the support of Kansas City Southern by sweetening its offer to include more stock and by offering to pay the $700 million breakup fee that would be owned to Canadian Pacific if Kansas City Southern walks away from the deal that was announced in March.
CN’s latest offer still includes $200 in cash for each Kansas City Southern share, but the Canadian railroad is now also offering 1.129 shares of its stock. Previously, Canadian National had been offering 1.059 shares of CN common stock for each share. The transaction also includes about $3.8 billion in Kansas City Southern’s debt.
Ever since CN joined the bidding for Kansas City Southern, Canadian Pacific had resisted increasing its original offer, which valued each Kansas City Southern share at $275. It included $90 cash with the rest coming in the form of CP stock.
Earlier this week, regulators refused to approve Canadian National’s plan to set up a voting trust to acquire Kansas City Southern and hold the railroad during the Surface Transportation Board’s lengthy review that will take more than a year. The STB said it couldn’t evaluate CN’s plan because at that point it hadn’t submitted a copy of its merger agreement, but it also said when it does review CN’s plan, it will take a cautious approach. The board also questioned whether the level of debt Canadian National plans to take on to buy Kansas City Southern would undermine the financial stability of the railroad.
The Surface Transportation Board hasn’t approved any major railroad mergers since the 1990s. It has generally said that any deal involving one of the nation’s six largest railroads needs to enhance competition and serve the public interest to get approved. The board has also said it would consider whether any deal would destabilize the industry and prompt additional mergers.
For more than two decades, the railroad industry has been stable, with two railroads in the western United States — BNSF and Union Pacific — two in the eastern United States — CSX and Norfolk Southern — and the two Canadian railroads that serve part of the United States.
Creel said that if Canadian Pacific loses out on Kansas City Southern, than his railroad will pursue other strategic opportunities, so. In the past, Canadian Pacific has attempted unsuccessfully to buy both Norfolk Southern and CSX.