Kansas City Southern Says Canadian Pacific Bid Superior to Canadian National Deal
Canadian National now has five business days to improve its already accepted offer to avoid termination of the deal
Kansas City Southern KSU -1.25% said a recent takeover offer from Canadian Pacific Railway Ltd. CP -1.24% is superior to one it already accepted from Canadian National Railway Co. CNI -0.91% in the latest twist in a hotly contested battle for the railroad.
As set out in the terms of its existing agreement with Kansas City Southern, Canadian National now has five business days to improve its offer to avoid termination of the deal. It could also choose to walk away—and receive a $700 million breakup fee and reimbursement for a similar fee it previously covered.
Canadian Pacific, which had given Kansas City Southern until today to make a determination, said in a statement Sunday that it stands ready to complete a deal. Canadian National said in a statement that it is evaluating all of its options.
Should Canadian Pacific ultimately prevail, it would reunite two companies that first agreed to a $25 billion tie-up in March, before Canadian National swooped in with a roughly $30 billion topping bid.
In a deal with Canadian Pacific, Kansas City Southern shareholders would receive 2.884 Canadian Pacific shares and $90 in cash for each of their shares, now worth about $288 a share or $26 billion. Under the current deal with Canadian National, Kansas City Southern shareholders would receive 1.129 Canadian National shares and $200 in cash, worth about $334 a share.
Canadian National’s bid suffered a major setback on Aug. 31, when the Surface Transportation Board, a five-member panel that must bless mergers of freight railroads, ruled that the company wouldn’t be permitted to complete a deal using a temporary voting trust that was a crucial part of the offer.
The STB ruled that Canadian National hadn’t demonstrated that its use of a voting trust would be consistent with the public interest. Canadian National said last week that it is disappointed in the STB’s ruling and is evaluating its options. It said it remains confident that its proposal is in the public interest.
The STB decision had been eagerly awaited by the companies and investors. It prompted Kansas City Southern to evaluate an offer it had received earlier this month from Canadian Pacific, which had received the go-ahead for a similar trust months ago.
As Canadian National determines its next move, it also has an increasingly vocal shareholder to contend with: London-based hedge fund TCI Fund Management Ltd., which owns a roughly 5% stake, has urged the railway operator to abandon the deal and replace its CEO. TCI also owns a roughly 8% stake in Canadian Pacific and favors a deal between that railroad and Kansas City Southern.