Railway company Kansas City Southern has agreed to a $30 billion U.S. merger with Canadian National Railway, scrapping an earlier $25 billion U.S. deal with Canadian Pacific Railway after it declined to boost its offer.
Under the deal, Canadian National will pay $200 U.S. and 1.129 shares of its stock for each share of Kansas City Southern, the U.S. railroad said in a written statement. Kansas City Southern will also pay a $700 million U.S. break-up fee to Canadian Pacific, which will then be reimbursed by Canadian National Railway.
Kansas City Southern last week deemed Canadian National’s bid superior and gave Canadian Pacific until the end of this week to increase its offer. Instead, Canadian Pacific said it wouldn’t enter a bidding war. It urged Kansas City Southern to drop its larger rival’s proposal because of heightened risk that the deal couldn’t win approval from U.S. regulators, which is still a looming issue for Canadian National Railway.
If the merger is approved, the combined Kansas City Southern and Canadian National Railway will become the first railroad to operate throughout Canada, the U.S. and Mexico. Kansas City Southern gets about half its revenue from Mexico, which is poised to capture investment as manufacturers seek to use a renegotiated trilateral trade agreement to shorten overseas supply lines.
Now that Kansas City Southern has spurned Canadian Pacific’s bid, the focus shifts to the U.S. Surface Transportation Board (STB), which will decide whether Canadian National can use a voting trust to complete the transaction. Closing the deal is contingent on getting such approval.
The trust would allow Kansas City Southern stockholders to get paid for their stock while government approval to merge operations is pending -- a process that could take more than a year. The STB, which has final say on U.S. railroad mergers, has approved Canadian Pacific’s trust but hasn’t yet made a final decision on Canadian National Railway’s.
