“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,” Canadian National Chief Executive Officer Jean-Jacques Ruest said in a separate statement.
Kansas City Southern has notified Canadian Pacific that it intends to terminate their merger accord and choose Canadian National, which would gain control of a sprawling network crossing three countries. In the takeover fight between two longtime rivals, Ruest is attempting to seize a prize long sought by Canadian Pacific CEO Keith Creel, who once served alongside him as Canadian National’s chief operating officer.
Canadian Pacific said in a statement it will respond to Kansas City Southern within the allotted time, called Canadian National’s bid “anti-competitive,” and reiterated it is “not going to enter into a bidding war.”
The Canadian National offer would be subject to approval by Kansas City Southern stockholders. It would also need authorization for a planned voting trust by the U.S. Surface Transportation Board, among other regulatory permissions, Kansas City Southern said.
The deal, which includes assumption of $3.8 billion in debt, keeps the cash part of the offer at $200 a share for Kansas City Southern investors while boosting the stock portion to 1.129 Canadian National shares from 1.059. Canadian Pacific had offered about $29 billion in enterprise value.
Subscribe to Crain’s for $3.25 a week
The decision presents Creel with the choice of increasing his offer, or walking away and pocketing a $700 million breakup fee under the terms of the agreement that Kansas City Southern accepted in March. Creel has said that his company couldn’t win a bidding war with its larger Canadian competitor. Kansas City Southern can accept Canadian National’s offer any time until 5 p.m. Eastern time on May 21.