North America - CN should drop its pursuit of KCS now that regulators have erected a major roadblock, a CN shareholder said, adding its voice to TCI Fund Management Ltd.'s public campaign against the deal.
 
"It was a reasonable effort, although I certainly agree with TCI. Once the regulatory winds have changed, they should give up," said Ernest Wong, head of research at Baskin Wealth Management, which owns CN shares as part of the $2 billion it manages.
 
Montreal-based CN has offered $30 billion for its U.S. rival, but the transaction appears to have little chance of succeeding after the U.S. STB, a part of the Transportation Department, rejected CN's request to use a voting trust.
 
The trust was vital to the deal because it would have allowed KCS shareholders to get paid for their shares while regulators conducted an extended review of the merger.
 
Wong's comments come after London-based TCI, which owns more than 5 percent of CN's shares, called on the railway to walk away from the merger agreement and said Chief Executive Officer Jean-Jacques Ruest and Chairman Robert Pace should resign.
 
"Proceeding without a voting trust would be reckless, irresponsible, and massively value destructive. The Board must understand that the rules have changed," TCI said in a letter to the CN board on Tuesday, shortly after the regulatory decision.
 
CN is at risk of having to pay a $1 billion break fee, in addition to the $700 million it has already sent to KCS as a reimbursement of the fee the U.S. railway had to pay CP for accepting CN's higher offer.
 
"All in all, it's obviously painful that they could lose $1.7 billion with fees," Wong said.
 
But it still made sense for CN to try to do the deal because KCS is a "once-in-a-lifetime asset," he said.
 
Paul Sambo.