One of two Canadian railways bidding for Kansas City Southern gives up.

Canadian Pacific has emerged victorious from a long-term battle to acquire Kansas City Southern, making it the first rail operator with ...

Canadian Pacific has emerged victorious from a long-term battle to acquire Kansas City Southern, making it the first rail operator with a network stretching from Canada to Mexico.

Its rival in the auction, the Canadian National, said wednesday that he had received notice from Kansas City Southern that he was ending a merger agreement they had signed in May.

“The decision not to proceed with our proposed merger with KCS is the right move for CN as a trustee responsible for the interests of our shareholders,” Jean-Jacques Ruest, general manager of Canadian National, said in a statement.

The stake was perhaps the last major acquisition of a great railroad; the mergers have consolidated the industry to seven out of more than 100 railroads. Key to the deal is access to Mexico, as the railways seek to capitalize on trade flows across America of the North in the wake of the United States-Mexico-Canada Agreement, which was enacted last year.

“The timing, relative to what’s happening in the market, has never been better,” said Keith Creel, CEO of Canadian Pacific. “With the USMCA, with the offshoring that is happening with many companies trying to stabilize their supply chain, this will become the backbone to allow that to happen. “

Canadian Pacific first presented its Kansas City Southern $ 29 billion offer in March, before being overcome a $ 33.7 billion offer from Canadian National in April. But the deal with Canadian National was the subject of a regulatory challenge last month. In response, Kansas City Southern said on Sunday it had chosen Canadian Pacific as top contender.

Canadian Pacific eased its cash and stock offering in August, valuing Kansas City at around $ 31 billion. The key was “to avoid a bidding war,” Mr. Creel said. Canadian Pacific’s winning bid was higher than its initial bid, but still lower than that of Canadian National.

“I knew our best game was to keep our powder dry, wait for the right opportunity, and then make our last best offer,” he said.

To fund its transaction, Canadian Pacific increased its prescribed value on Kansas City Southern stocks and increased its debt financing to $ 9.5 billion from $ 8.6 billion.

Canadian Pacific shares rose just over 1% on Wednesday, while Canadian National shares rose more than 3%. Kansas City Southern stocks rose less than 1%.

Canadian National pulled out as it grappled with investors unhappy about its role in the takeover. TCI Fund Management, a long-time rail investor who owns more than 5 percent of the shares of Canadian National, started a proxy battle to oust Mr. Ruest, partly angry at what he called a “reckless offer” for Kansas City Southern.

TCI demanded that Canadian National stop pursuing the acquisition and review its board of directors. He is also the largest shareholder of Canadian Pacific, with an 8% stake.

Kansas City Southern will pay Canadian National a breakage fee of $ 700 million, as well as an additional $ 700 million that Canadian National paid to terminate the railway’s original agreement with Canadian Pacific.

The turning point of the agreement was a decision of the regulator overseeing rail transactions, the Surface Transportation Board, which unanimously ruled against companies using a voting trust, a common but controversial structure in such agreements.

This decision was the first real test of the guidelines put in place in 2001 to increase competition in the agreements involving the largest railways. Canadian Pacific, which proposed a voting trust that regulators have not blocked, has successfully advocated for its deal with Kansas City Southern to be assessed outside of those guidelines, given its smaller size.

Yet that was before President Biden’s July executive order aimed at anti-competitive maneuvers in the rail industry and a host of others. The Surface Transportation Board has yet to approve the Kansas City Southern and Canadian Pacific agreement with this new review as a backdrop. Mexican regulators and shareholders must also approve it.

The executive order “makes me more firmly convinced of our ability to get this deal approved,” said Creel, who touted the deal’s ability to get trucks off the road at a time when the Biden administration is focused. heavily on carbon emissions. The agreement is the only combination of the larger railways that does not have an overlap, he said.

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Newsrust - US Top News: One of two Canadian railways bidding for Kansas City Southern gives up.
One of two Canadian railways bidding for Kansas City Southern gives up.
Newsrust - US Top News
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