North America - The board of directors for a U.S. railway facing takeover bids from each of Canada's big two railways is sticking with CN's proposal.
 
The board for KCS, in a release 12 Aug 2021, said it unanimously agrees an upgraded 10 Aug 2021 cash-and-stock bid from CP "does not constitute a company superior proposal" and will continue to recommend its shareholders vote in favour of a deal with CN.
 
The recommendation from KCS' board doesn't yet end the tug-of-war between CN and CP for control of KCS, with either outcome creating a North American railway stretching coast-to-coast in Canada and south through the U.S. Midwest to Gulf ports in both the U.S. and Mexico.
 
CP and KCS in March reached a deal for a friendly US$25 billion combination, in which KCS shareholders would get US$90 cash and 0.498 CP shares per KCS share.
 
CN on 20 Apr 2021 announced its own US$33.6 billion bid, worth US$200 cash and 1.059 CN shares per KCS share.
 
KCS on 21 May 2021 formally walked away from CP's bid and announced a "definitive" deal with CN.
 
CP then countered on 10 Aug 2021 with a new US$31 billion bid, at US$90 cash plus 2.884 CP shares per KCS share.
 
While lower than CN's bid overall, CP said its new bid is "substantially similar to the terms of the CN merger agreement, but offers significantly higher regulatory certainty than the proposed CN merger, and significantly higher value than our previously agreed combination."
 
CN's proposal, meanwhile, remains subject to the U.S. STB approval of a CN/KCS voting trust, in which affected shareholders temporarily assign voting rights to a third-party trustee.
 
CP's use of a voting trust for its March bid got STB approval on 6 May 2021.
 
The STB said last week it will rule on the proposed CN/KCS voting trust by the end of this month.
 
With no ruling yet issued, KCS, which had planned to hold a special meeting of shareholders Thursday to vote on the deal, instead announced Thursday it will postpone that meeting to 3 Sep 2021.
 
CP on Thursday hailed KCS' decision to postpone the meeting, saying it "appropriately will allow stockholders to have access to all the information needed before voting on the CN/KCS merger proposal, including the critical decision by the STB on CN's proposed voting trust."
 
Also, CP said, postponing the vote means KCS shareholders "won't become locked into a CN/KCS combination and then unable to consider other, better options like CP's 10 Aug 2021 proposal, which remains outstanding."
 
KCS said Thursday it and CN are "confident that the CN/KCS voting trust meets all the standards and the public interest test set forth by the STB and believe that it should be approved."
 
Customer Access
 
CP and its supporters contend that a CN/KCS merger does not create an "end-to-end" combination of rail lines, as both CN and KCS operate lines between Baton Rouge and New Orleans, an overlap CN has proposed to remedy by selling the 112 kilometre KCS line between the two Louisiana communities.
 
CP said that proposed divestiture still "does not address many shippers and stations that are today served by both KCS and CN in markets like Omaha/Council Bluffs, Jackson, Mississippi, Springfield, Illinois, and St. Louis."
 
Selling the Louisiana line, CP said, also "does not address geographic competition between CN and KCS in numerous areas where each of them competes to handle similar commodities to/from different shippers, terminals, and trans-loads in the same region."
 
Further, CP said, "it does not address the impact a CN/KCS combination would have on customer access to CP routes serving the upper U.S. Midwest and Canada."
 
Also, CP said, "during the year and a half when CN would be seeking to close their acquisition of KCS, competition in this corridor would be diminished as CN and KCS managers each would know that their railroads' profits flowed to the same owner, CN."
 
CP also contended that if CN is allowed to hold KCS in trust for 3 1/2 years, it would leave CN as "the winner whether it competes or not" and shippers would "lose competition during that entire period regardless of the outcome of the STB approval process."
 
KCS, in a presentation to investors earlier this month, said "only 39" CN and KCS customers in the U.S. would see a reduction in the number of available railroads from three-to-two, or two-to-one, and all those customers are "on or near" the Louisiana track CN proposes to sell.
 
Further, KCS said, the "vast majority" of the 406 other rail customers in the U.S. areas CP cites will continue to have access to four or more railroads.
 
Dave Bedard.