KCS declares Canadian Pacific’s merger offer as ‘superior’

A photograph of a Kansas City Southern train hauling intermodal containers.

Kansas City Southern’s board of directors confirmed that it has declared Canadian Pacific’s bid to acquire KCS as “superior,” thus diminishing the prospects of an acquisition by rival CN.

“The KCS Board of Directors determined that CP’s revised proposal constitutes a ‘Company Superior Proposal’ as defined in KCS’s merger agreement with Canadian National Railway,” KCS said Sunday. “The KCS Board of Directors made this determination after consultation with the company’s outside legal and financial advisors.”

Rivals CN (NYSE: CNI) and CP (NYSE: CP) have both been seeking to acquire KCS (NYSE: KSU). CP and KCS announced in March their plans to merge, but then CN put forth a competing $33.6 billion bid, and KCS opted in May to go with CN. 

CP followed by revising its offer to acquire KCS, presenting KCS with a stock-and-cash bid worth an estimated $31 billion in August. KCS subsequently declined the offer.

Then the Surface Transportation Board on Aug. 31 unanimously rejected CN’s application to establish a voting trust which CN would use to acquire KCS, making unclear the prospect of a CN-KCS merger. The STB said the proposed trust “is not consistent with the public interest standard under the board’s merger regulations.”

Following STB’s decision, CP gave KCS a deadline on Sunday to decide whether to continue with CP’s offer: “Our appetite and willingness to keep that offer on the table doesn’t exist” past Sept. 12, CP President and CEO Keith Creel said.

KCS hinted last week that it would be considering CP’s revised offer, but Sunday’s announcement seals the deal.

CP’s proposal calls for each share of KCS common stock to be exchanged for 2.884 CP common shares and $90 in cash. In addition, holders of KCS preferred stock would receive $37.50 in cash for each share of KCS preferred stock held, KCS said. The stockholders of CP and KCS still need to approve the transaction. 

KCS has notified CN that it plans to terminate the merger agreement with CN and enter a merger agreement with CP, subject to CN’s right to negotiate the existing amendment for five days.

In response to KCS’ decision, CP’s Creel said, “We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership. As we have said throughout this process, CP remains committed to everything this opportunity presents. This merger proposal provides KCS stockholders greater regulatory and value certainty. We are excited to move forward as we work toward making this perfect match a reality.”

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