Calgary Alberta - CP made a new, higher, bid for KCS, looking to derail the U.S. railroad's pending merger with rival CN ahead of an important shareholder vote less than two weeks away.
 
The offer is US$300 a share, Calgary-based CP said in a statement Tuesday, or about US$27 billion in equity value.
 
While that's higher than its original US$25 billion bid from March, the new price doesn't match the US$30 billion deal KCS's board accepted from CN in May.
 
CN's offer, which works out to about US$325 a share, will be voted on by the U.S. railroad's shareholders on 19 Aug 2021.
 
CP chief executive Keith Creel is touting "deal certainty" to entice KCS investors with an easier path to regulatory approval.
 
He's counting on the U.S. Surface Transportation Board (STB) to deny CN's petition to set up a voting trust, a financial mechanism to pay KCS shareholders even while the full merger is being reviewed by U.S. regulators.
 
KCS has said the voting trust is necessary for the deal to go forward.
 
"There's not a meaningful gap if the deal is not achievable," Creel said during a conference call with analysts Tuesday, discussing the difference of his bid versus CN's.
 
"If you can't get the deal approved, how does the shareholder ever realize the value?"
 
The new bid adds another twist in the two-way race to see which Canadian railroad will win KCS, and in doing so, unite rail networks that stretch across Canada and then southward through the heart of the U.S. and deep into industrial Mexico.
 
If successful, CP would get a bit of retribution after CN intervened with an offer that topped CP's original bid from March.
 
Responding to its smaller rival's new bid, CN said in a statement that "CN continues to have a better bid, be a better partner, and offer the best solution for KCS and its stakeholders."
 
CP's new proposed transaction has an enterprise value of about UA$31 billion including the assumption of UA$3.8 billion in debt, CP said in its statement.
 
Creel reiterated that he wouldn't get into a bidding war with his larger, deeper-pocketed rival.
 
CP has long held that its plan would provide KCS a clearer shot at regulatory approval from the STB, which already approved that carrier's voting trust petition under more lax merger rules.
 
The board has said that the tie-up between CP and KCS, the two smallest of the seven large U.S. and Canadian railroads, would "result in the fewest overlapping routes."
 
The U.S. regulator decided to judge the Cn agreement under stricter merger guidelines that also take into account "public interest."
 
To help ease the approval, CN offered to sell tracks that overlap with KCS, mainly between New Orleans and Baton Rouge.
 
The clock is now ticking to see if the regulators rule on CN's voting trust before KCS shareholders hold their vote on 19 Aug 2021.
 
CP filed a proxy statement on 29 Jul 2021 asking KCS shareholders to vote against the CN agreement, to provide time for "when more information will be available."
 
The new bid will give KCS shareholders an alternative to the CN agreement, Creel said on the conference call.
 
CP collected a $700 million fee from KCS after the U.S. railroad broke their March merger agreement to take CN's offer in May.
 
If shareholders approve the CN deal on 19 Aug 2021, it will lock KCS into that agreement until February even if the STB strikes down the voting trust, Creel said.
 
"It's important that the shareholders speak up," Creel said.
 
"They need to vote no on the CN deal. We ask them to defer."
 
The purchase of KCS would give CN a large Mexico railroad, which holds promise of quicker growth, and add almost parallel tracks to its existing U.S. operations that run north to south.
 
To ease regulatory approval, CN offered to sell about 70 miles of overlapping track.
 
For CP, the deal would give the railroad a U.S. presence that somewhat matches its rival, plus the Mexico operations.
 
Without a deal, CP would be much smaller than its chief rival and more isolated to Canada.
 
That could force it to seek a transaction with another U.S. railroad, which could kick off more mergers after a two-decade freeze on large rail deals.
 
CP said Tuesday it now expects to achieve added sales and cost savings worth about $1 billion in three years, more than the $780 million expected in its original offer for KCS.
 
Thomas Black.