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CP Rail reaffirms interest in KCS after U.S. regulator rejects CN’s trust proposal

TORONTO —
Canadian Pacific Railway Ltd. has approached the Kansas City Southern board to reaffirm its interest in taking over the railway after U.S. regulators rejected a key part of Canadian National Railway Co.’s bid.

“It is the perfect combination,” CP Rail CEO Keith Creel told a conference call with investors Wednesday, a day after the U.S. Surface Transportation Board rejected CN’s use of a voting trust as part of its bid for KCS.

CP Rail has maintained that its offer, worth about US$31 billion including debt, is superior to CN’s bid, worth about US$33.6 billion including debt, because it carries less regulatory risk.

Calgary-based CP Rail has given a deadline of Sept. 12 for KCS to consider its offer, said Creel.

“The deadline is the deadline. Our appetite to keep that offer on the table forever does not exist.”

The KCS board said Wednesday that it would evaluate CP’s proposal in accordance with the terms of KCS’ merger agreement with CN and respond in due course.

KCS and CN both said they were disappointed by the U.S. regulator’s decision and were evaluating options. KCS also said it would adjourn a meeting it had scheduled for shareholders to vote on CN’s bid.

The trust would have allowed KCS to remain independent while a full and lengthy regulatory review of the proposed takeover went forward, while also allowing shareholders to be paid without having to wait for a final decision on the deal.

However, the U.S. regulator ruled that the trust would reduce incentives for competition between the two railways whose networks overlap, and is not consistent with the public interest standard under its merger regulations.

Montreal-based CN said it remains confident its offer to buy the U.S. railway is in the public interest.

CN’s proposed acquisition of KCS would be the first to test stricter merger criteria in the rail industry that would evaluate whether a merger would enhance competition.

CP Rail has approval for a voting trust structure, and, because of its smaller size and lack of overlap with KCS, it has secured a waiver so that its bid would be judged on the older merger criteria.

CP shares recovered from Tuesday’s losses to gained $4.76 or 5.5 per cent at $91.45 in afternoon trading on the Toronto Stock Exchange. CN shares rose $5.49 or 3.7 per cent at $153.89.

This report by The Canadian Press was first published Sept. 1, 2021.



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