KANSAS CITY — Kansas City Southern (KCS) is back on the Canadian Pacific (CP) transaction train. On Sept. 12, the board of directors of KCS determined that CP’s revised proposal constitutes a “company superior proposal” to that of Canadian National Railway (CN).
CP’s merger proposal values KCS at $300 per share, representing a 34% premium, based on the CP closing price on Aug. 9, 2021, and KCS unaffected closing price on March 19, 2021. Following the closing into a voting trust, common shareholders of KCS will receive 2.884 CP common shares and $90 in cash for each share of KCS common stock held. The proposed transaction includes the assumption of $3.8 billion of outstanding KCS debt.
The CP proposal is valued at approximately $31 billion, which compares with the $33.6 billion that CN had been offering.
KCS’s decision to switch back to CP comes less than two weeks after the Surface Transportation Board (STB) on Aug. 31 issued a unanimous decision rejecting the use of a voting trust agreement in connection with the proposed transaction between CN and KCS. The STB’s decision marked a significant setback in the months-long saga that has seen KCS consider acquisition proposals from both CN and CP.
A month ago, on Aug. 13, KCS rejected CP’s proposal, noting its intent to move forward with a merger with CN. At that time, CP said it would continue to explore ways to make its offer work.
“We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership,” said Keith Creel, president and chief executive officer of CP. “As we have said throughout this process, CP remains committed to everything this opportunity presents. This merger proposal provides KCS stockholders greater regulatory and value certainty. We are excited to move forward as we work toward making this perfect match a reality.”
Even now, the deal between KCS and CP remains no guarantee. CN now has the right to negotiate amendments to the merger agreement for at least five business days, and the KCS board will have the ability to determine whether any such amendments would cause the CP proposal to no longer constitute a “company superior proposal.”