North America - Billionaire hedge fund manager Chris Hohn on Tuesday urged Canadian National Railway (CN) to abandon its US$33.6 billion bid for Kansas City Southern (KCS) unless the Canadian railroad operator changed its agreement to drop a key feature that could invite more regulatory scrutiny.
 
Hohn's TCI Fund Management, which has a 2.93 percent stake in CN, said the company should not go ahead with its plan to create a voting trust structure for the takeover.
 
"CN regularly engages with and welcomes constructive input from its shareholders. CN's board believes its pro-competitive combination with KCS is in the best interest of CN's shareholders," a spokesperson for CN in a statement.
 
CN and Canadian Pacific Railway (CP) are seeking to buy U.S. railroad KCS to create a North American railway spanning the United States, Mexico, and Canada.
 
KCS last week accepted CN's US$33.6 billion acquisition offer, upending a US$29 billion deal with CP.
 
"We think it is negligent and hugely irresponsible for the CN board to commit $2 billion of shareholders' money on whether the STB will approve the voting trust for the CN/KCS transaction," TCI said in a letter to CN Chairman Robert Pace.
 
The $2 billion stems from the $700 million breakup fee CN would pay CP for upending their deal, and the $1 billion it would pay Kansas City if the U.S. Surface Transportation Board (STB) shoots down the voting trust.
 
A voting trust is a temporary ring fenced structure that CN would use to hold KCS after the deal closes without exercising control over it, until the STB approves or rejects the acquisition.
 
TCI is also the largest shareholder of CP with an 8.38 percent stake, according to Refinitiv data.
 
"It is now clear that CN should abandon its pursuit of KCS unless the merger agreement is amended such that it is not conditional on a voting trust being approved," TCI added.
 
TCI said it believes the STB reviewing CN's bid under the new rules makes approval for the deal uncertain.
 
Sanjana Shivdas.