Kansas City Missouri USA - Kansas City Southern (KCS) will begin discussions with Canadian National (CN) over its offer for the railroad after the KCS board of directors determined the CN bid could reasonably be expected to lead to a "company superior proposal," as defined in its merger agreement with CP, KCS announced in a Saturday press release.
 
CP noted in its own release that KCS is obligated to consider the CN offer under the terms of the CP/KCS agreement, as well as its duty to shareholders.
 
Bloomberg first reported the move was coming, citing sources that said KCS sees greater antitrust risks in the CN offer, but does not consider them insurmountable.
 
The CN offer is for cash and stock valued at US$325 per KCS share.
 
The CP bid announced in March is valued at US$275 per share.
 
KCS said it remains bound by the terms of the CP agreement, that its board has not determined that the CN offer is in fact a "superior proposal" as defined in the deal with CP, and that there is no assurance that the discussions with CN will lead to an agreement.
 
CP CEO Keith Creel said CP "fully supports" the KCS review of the CN offer.
 
"We are confident through this process that they will recognize this unsolicited bid is fraught with challenges, uncertainties, and regulatory risks that are not present in the seamless, pro-competitive, and pro-service CP/KCS combination," Creel said.
 
CP's release also raises a number of questions it says CN must answer, among them, if the CN bid is real or just an effort to block the CP/KCS deal, and how CN plans to obtain regulatory approval for its proposal.
 
CN and CP have been engaged in a war of words since Tuesday's announcement by CN that it would make an unsolicited offer for KCS, upending the previously announced CP/KCS merger plans.
 
On CP's quarterly earnings call last week, CEO Keith Creel called the CN offer is "unattainable" because of regulatory risks, meaning the greater dollar value of the CN offer is "worth zero".
 
CN's CEO, JJ Ruest, responded in a letter to the KCS board that CP was attacking the CN offer "with a variety of inaccurate and unfounded assertions".
 
CN will have its next chance to comment on its quarterly earnings call with investors and analysts, set for Monday.
 
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