Canadian Pacific Ups Its Offer to Kansas City Southern

After Canadian National made a higher bid for Class 1 railroad Kansas City Southern (KCS) and KCS pulled out of its acquisition talks with Canadian Pacific, CP has upped its offer.

The revised offer to acquire Kansas City Southern in a stock and cash transaction for a sum of around 31 billion USD, in recognition of the ‘premium value of KCS’. This transaction values KCS at 300 USD per share. CP said in its statement that after the closing into a voting trust, common shareholders of KCS would receive 2.884 CP common shares and 90 USD in cash for each share of KCS common stock held. This offer would also include the assumption of 3.8 billion USD of outstanding KCS debt.

This new offer is higher than the original bid made on 21 March 2021 and is substantially similar to the one put on the table by Canadian National. Contrary to the CN offer, however, Canadian Pacific believes its offer offers ‘significantly higher regulatory certainty’. This is in part because Canadian Pacific, unlike Canadian National, has already received the approval from the Surface Transportation Board to use a voting trust. It is not yet clear whether the STB will approve the use of a voting trust for Canadian National, given the railroad’s larger size.

The deal presented by Canadian National is worth around 325 USD per share.

Canadian National made its rival bid in May 2021. Canadian Pacific did not revise its offer earlier because it felt engaging in a bidding war would not have been beneficial to CP shareholders.

Kansas City Southern acknowledged receipt of the new CP offer and said the KCS board of directors would assess the proposal in accordance with the terms of KCS’s merger agreement with CN. It further said the board had not yet made a determination with regards to the CP proposal.

Canadian Pacific undoubtedly felt compelled to make this higher offer in light of the fact that KCS shareholders are shortly due to vote on the CN-KCS merger, tying KCS into that agreement.

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