KCS Board Accepts “Superior” Canadian National Bid

Kansas City Southern is switching tracks, with the railroad announcing Thursday they will now accept a competing acquisition bid from Canadian National.  Its board of directors said Thursday that they considered the $33.7 billion proposal by the Montréal-based railway superior to the initial merger agreement announced in March between KC Southern and Canadian Pacific.  Last night, KC Southern informed Canadian Pacific they were terminating that agreement that was valued at $25 billion, unless amendments are made within five days to make their bid more competitive.

If ultimately agreed to by shareholders and approved by the Surface Transportation Board, Kansas City Southern shareholders will receive $200 in cash and 1.129 shares of Canadian National for each share of KCS.  CN will also reimburse the railroad its $700 million fee owed to Canadian Pacific for terminating the previous merger agreement.

In a statement, Canadian National celebrated the decision, with CEO JJ Ruest saying that their agreement offers, quote: “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.”  In response to Thursday’s action, Calgary-based Canadian Pacific called CN’s bid unsolicited and anti-competitive.  In a statement, CP said that that they were not surprised by the updated bid, adding that it highlighted the proposal’s “significant regulatory risk and challenges”.  While CP says they will respond to the KC Southern board’s decision, they do not plan to enter a bidding war, believing their initial deal remains “compelling” and “actually achievable”.