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CN Proposes Combining with Kansas City Southern

Combination will create connecting ports in U.S., Canada and Mexico to facilitate trade

Photo courtesy of CN
Photo courtesy of CN

CN has made a superior proposal to combine with Kansas City Southern in a cash-and-stock transaction valued at $33.7 billion, or $325 per share.

Together, CN and KCS will create a premier railway for the 21st century, seamlessly connecting ports and rails in the United States, Mexico and Canada and providing superior service, enhanced competition and new market access to move goods across North America efficiently and safely.

This rail and logistics network would reduce traffic congestion and prevent thousands of tons of greenhouse gas emissions from entering the atmosphere every day. This combination will also significantly expand the combined company’s total addressable market and provide growth opportunities across the rapidly growing USCMA network.

Under the terms of the superior proposal made today to KCS’ Board of Directors, following closing into a voting trust, KCS shareholders will receive $200 in cash and 1.059 shares of CN common stock for each KCS common share. Based on yesterday’s closing price of CN shares, CN’s proposal is valued at $325 per KCS share. This represents an implied premium of 45% when compared to KCS’ unaffected closing stock price on March 19, 2021 and an 21% improvement over the current value of KCS’ agreement with Canadian Pacific Railway Limited (TSX: CP, NYSE: CP) (“CP”). With greater than two-times more cash consideration, CN’s superior proposal delivers greater value and certainty to KCS shareholders, as well as participation in the significant upside of the combined company.

CN currently estimates that the combination would result in EBITDA synergies approaching $1 billion annually, with the vast majority of synergies coming from additional revenue opportunities. CN anticipates the transaction to be accretive to CN’s adjusted diluted earnings per share2 in the first full year following CN assuming control of KCS. These are conservative estimates based on publicly available information and would be refined during the due diligence process.

“CN is ideally positioned to combine with KCS to create a company with broader reach and greater scale, and to seamlessly connect more customers to rail hubs and ports in the U.S., Mexico and Canada," says JJ Ruest, president and chief executive officer of CN. "CN and KCS have highly complementary networks with limited overlap that will enable them to accelerate growth in single-owner, single-operator, end-to-end service across North America. With safer service and better fuel efficiency on key routes from Mexico through the heartland of America, the result will be a safer, faster, cleaner and stronger railway.”

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