Kansas City Southern Accepts CP Rail’s Merger Offer

Kansas City Southern (NYSE:KSU) has accepted a $27-billion U.S. merger offer from Canadian Pacific Railway Ltd. (TSX:CP.

In accepting the CP Rail offer, Kansas City Southern had to back out of a previous merger agreement it entered into with Canadian National Railway Co. (TSX:CNR), ending a prolonged fight over which railroad would have a truly North American presence with operations in Canada, the U.S. and Mexico.

CP Rail’s merger proposal was viewed as the best option even though, at about $27 billion U.S., it is lower than CN Rail’s $30 billion U.S. offer, which began to unravel last month amid questions over whether it would win regulatory approval.

CN Rail now has five business days to negotiate terms that could change the U.S. railroad’s decision, Kansas City Southern said in a statement issued over the weekend.

CN Rail said it’s continuing to evaluate its options and "will make carefully considered decisions in the interests of all CN shareholders and stakeholders and in line with our strategic priorities."

CP Rail and Kansas City Southern had initially agreed to a deal in March, only for CN Rail to swoop in with a higher bid. The Canadian companies are battling for the rare opportunity to acquire a U.S. railroad and build a network spanning much of North America, including operations in Mexico.

CP Rail’s offer values the U.S. railroad about $300 U.S. a share. Kansas City Southern ended last week at about $280 U.S. in New York trading, up from $224 U.S. before CP Rail’s initial offer became public on March 21 of this year.

CN Rail shares fell 5.2% to $150.74 in Toronto last week, while CP Rail’s shares declined 4.1% to $86.91.