May 14, 2021

CN Takes Lead in KCS Bidding War

CN looks forward to promptly entering into definitive merger agreement with KCS

source: Canadian National Railway

CN announces that following the completion of confirmatory due diligence, it submitted an enhanced binding superior proposal and merger agreement to the Kansas City Southern (KCS) board of directors.

The KCS Board has determined CN’s proposal to be a “Company Superior Proposal” and has announced its intention to terminate the previously executed March 21, 2021 merger agreement with Canadian Pacific Railway.

CN looks forward to promptly entering into a definitive merger agreement with KCS.

CN’s proposal offers KCS shareholders $325 per common share based on yesterday’s closing price of CN shares, which implies a total enterprise value of $33.6 billion, including the assumption of approximately $3.8 billion of KCS debt.

Under the terms of CN’s revised proposal, KCS shareholders will receive $200 in cash and 1.129 shares of CN common stock for each KCS common share, with KCS shareholders expected to own 12.6% of the combined company. This represents an implied premium of 45% when compared to KCS’ unaffected closing stock price on March 19, 2021.

KCS’ preferred shareholders will continue to receive $37.50 in cash for each preferred share. Under the terms of the revised proposal, a wholly owned subsidiary of CN has also agreed to reimburse $700 million to KCS in connection with their payment of the termination fee to CP under the merger agreement with CP.

“We are delighted that KCS has deemed CN’s binding proposal superior, recognizing the many compelling benefits of our combination and expressing confidence in CN’s ability to obtain the necessary approvals and successfully close the transaction," says JJ Ruest, president and chief executive officer of CN.

"Our proposal offers a clear path to completion and is structured in a way that gives KCS shareholders both greater immediate value and the opportunity to participate in the future upside of the combined company," he continues.

"Together, CN and KCS will seamlessly connect ports and rails in the United States, Mexico and Canada by providing superior service, enhanced competition and new market access to move goods across North America safely and efficiently. We are encouraged by the widespread support we have received for the transaction thus far and will continue to work closely with KCS and all relevant stakeholders to fully realize the benefits and opportunities available through a combined CN-KCS.”

The combination of CN and KCS will:

  • Create the premier railway for the 21st century: The combination of CN and KCS will further accelerate CN’s industry-leading growth profile by connecting North America’s industrial corridor to create new options for shippers and new revenue for the combined company. A CN-KCS combination is the right solution to bring the USMCA to life in a meaningful way.

  • Have strong stakeholder support. CN has received more than 1,000 letters of support from customers, partners and elected officials since it first made its proposal; this is nearly double the number of support letters filed by CP, in less than half the time.
  • Be pro-competitive: CN and KCS will create a safer, faster, cleaner and stronger railway that is ideally positioned to support the growth of an emerging consumption-based economy through better service options and customer choice. Specifically, this combination will create an express route that connects the U.S., Mexico and Canada with a seamless single-owner, single-operator service, and preserve access to all existing gateways to enhance route choices and ensure robust price competition.

  • Accelerate innovation and environmental efficiency: CN and KCS share cultures that are committed to safety, service and environmental stewardship. CN and KCS will accelerate innovation and investment as CN brings its industry-leading safety technology and fuel efficiency to the KCS network. The combined company will yield demonstrable benefits for the environment across the states and regions traversed by KCS’ tracks by converting significant volumes of truck traffic onto rails, which deliver better fuel efficiency at lower cost. Expected conversion of truck traffic to rails will also reduce traffic congestion in these regions and prevent thousands of tons of emissions from entering the atmosphere every day.

  • Have a clear path to close: CN is confident in its ability to obtain approval from the Surface Transportation Board (“STB”) and other regulatory bodies on a timeline consistent with the proposed CP transaction. CN has proposed to use a voting trust and trustee that are identical to those the STB approved for CP’s proposed acquisition. KCS shareholders will receive the merger consideration immediately upon the closing of CN’s voting trust, which is expected to be in the second half of 2021. Moreover, CN’s proposed transaction will not require the approval of CN’s shareholders, eliminating a closing condition present in the proposed CP transaction and thereby providing greater certainty of closing. The completion of the transaction would be expected to take place in the second half of 2022.

For more information about CN’s proposal to combine with KCS, please visit ConnectedContinent.com.

Related Reading
CN Purchases 1,000 New Hopper Cars
CP, CN Lobby for Merger Support
Merger Creates First U.S.-Mexico-Canada Rail Network
Kansas City Southern Rejects $20B Takeover

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