Omaha, Nebraska – The National Bank of Canada’s $33.6 billion acquisition of Kansas City Southern Railway Company is in jeopardy after federal regulators rejected key parts of the plan on Tuesday and provided Canadian Pacific Railway Company with A competitive offer of $31 billion has opened the door.
The Ground Transportation Commission stated that Canadian nationals will not be able to use voting trusts to acquire southern Kansas City and hold railroads when the board reviews the overall transaction.
It is unclear whether Kansas City South still wants to advance the transaction without a voting trust, which will allow shareholders to be paid before the regulatory commission begins a long-term review of the transaction. In addition, the southern part of Kansas City is now free to accept CP’s offer, which has been approved by the regulatory authorities and can move on.
Pacific Canada is headquartered in Alberta, its U.S. headquarters is in Minneapolis, and has substantial operations in Sao Paulo; after merging with southern Kansas City, it planned to move these headquarters to Kansas City, Missouri.
Kansas City Southern and Canadian National Railway Company did not immediately respond publicly to Tuesday’s ruling.
The Ground Transportation Commission stated that “the proposed voting trust does not meet the public interest standards under the Commission’s merger regulations.”
Now that regulators have rejected the Canadian Nationalist Party’s plan to use voting trusts, the southern part of Kansas City will receive a $1 billion break-up fee. It is unclear whether Kansas City South will continue in the scheduled September 3 shareholder vote on the Canadian state transaction.
On Tuesday, the Canadian National Railways stock price rose more than 7% on Wall Street. The Canadian Pacific Railway Company fell 4.5%, and the southern part of Kansas City fell 4.4%.
An investment fund that claims to control more than 5% of the Canadian National Corporation’s shares sent a letter on Tuesday urging the railroad company to abandon its deal with southern Kansas City, reorganize its senior management and board of directors, and refocus on improving its operations. TCI Fund, a London-based investment company, said it expects CN’s chairman and CEO to resign after the transaction fails.
“It’s time to do the right thing, accept unfinished transactions, and exit the transaction,” said TCI, which is also a major shareholder of Canadian Pacific.
Edward Jones analyst Jeff Wendao said that the ground transportation committee basically decided that using voting trusts would bring more benefits to the company than to the public. Due to the potential impact on competition, this transaction may face stricter scrutiny.
The board seemed to agree with Canadian Pacific’s concerns about the impact of competition throughout the central United States. KCS and CN operate parallel rail lines connecting the Midwest and the Gulf Coast, so merging the two will eliminate transportation options for many companies.
“STB’s decision clearly shows that the CN-KCS merger proposal is illusory and cannot be realized,” said CP CEO Keith Creel. He said that CP’s proposal to acquire Kansas City Southern Company on August 10 is still at the negotiating table.
The Ground Transportation Commission also stated that allowing Canadian nationals to move forward with the acquisition of southern Kansas City may inspire more rail consolidation.
Canadian Pacific initially announced an agreement to acquire KCS at a price of approximately US$275 per share in March. But the Canadian Nationals intervened with an offer of $325 per share and eventually won the Kansas City South Board of Directors in May after the company’s bid added more shares and paid the breakup fee owed to CP by the Kansas City South.
Earlier this month, Canadian Pacific made an offer of $31 billion, which valued KCS at approximately $300 per share, but the Kansas City South Board of Directors rejected the offer. CP officials insisted throughout the bidding war that they believed it was unnecessary to bid higher than Canadian nationals because they believed that CN’s plan would not be approved for fear of its impact on competition.
Regulators have approved Canada Pacific’s plan to use a voting trust to acquire the southern part of Kansas City, so if KCS accepts CP’s proposal and the shareholders of the two railway companies approve, then the transaction has a clear path forward. Since there is almost no overlap between the two railway networks, there are fewer competition concerns about the proposed merger. Even after the transaction is completed, the combined railway will be the smallest of the major railways in North America.
Using a voting trust will allow shareholders in southern Kansas City to obtain advance payments before the Ground Transportation Commission begins a full review of the transaction, which may take more than 18 months. If the regulator ultimately rejects the deal, the voting trust will sell Kansas City South, so it can remain independent.
Since the 1990s, the Ground Transportation Commission has not approved any major rail mergers. It is generally believed that any transaction involving one of the six major railroads in the United States needs to strengthen competition and serve the public interest before it can be approved. The board also stated that it will consider whether any transactions will destabilize the industry and prompt more mergers.
For more than two decades, the railroad industry has remained stable. There are two railroads in the western United States—BNSF and Union Pacific—two in the eastern United States—CSX and southern Norfolk—and two railroads serving parts of the United States. Canadian Railways.