OMAHA, Neb. — Canadian National is defending its $33.7 billion bid to buy Kansas City Southern railroad against attacks from rival bidder Canadian Pacific.
A day after CP's CEO Keith Creel dismissed Canadian National's proposal as “fool's gold” because he doesn't believe it will be approved by regulators, Canadian National sought to reassure investors that its plan could be approved just as easily as CP's earlier $25 billion offer.
Canadian National said the takeover bid it announced Tuesday that Kansas City Southern is now reviewing would be structured nearly identically to the Canadian Pacific deal, so it doesn't anticipate problems with getting initial approval from the Surface Transportation Board. Both deals call for setting up a voting trust that would acquire Kansas City Southern and own the railroad during the extended review process the STB uses.
Regulators would be asked to first approve using a voting trust before later deciding whether to approve the acquisition based on whether the deal would enhance competition and serve the public interest. If regulators ultimately reject the deal, then the voting trust would sell off Kansas City Southern, so it could remain independent.
“Rather than acknowledge the clear and substantial superiority of CN’s proposal for KCS shareholders, CP has sought to distract investors and attack CN’s proposal with a variety of inaccurate and unfounded assertions,” CN President and CEO JJ Ruest said in a letter to Kansas City Southern's board on Thursday.
Creel said Wednesday that his railroad isn't planning to increase its offer, which values each Kansas City Southern share at $275, at this point because he thinks competitive concerns related to Canadian National's proposal would keep it from being approved. Canadian National's cash-and-stock offer values KCS at $325 a share and includes more cash per share.
Canadian Pacific has said that combining Kansas City Southern and Canadian National would hurt competition because both those companies have rail lines that compete for business between the Midwest and the Gulf Coast. Canadian Pacific’s network connects to Kansas City Southern in Kansas City, Missouri, but those two railroads don’t overlap elsewhere.
Canadian National said Thursday that it is confident it could address any competitive concerns related to its offer later in the regulatory process after the voting trust was approved.
Kansas City Southern is reviewing both proposals and plans to respond later.
Benchmark Research analyst Nathan Martin said Kansas City Southern's board has to decide which offer has the highest likelihood of getting approval and closing.
“If the winning bid can’t pass regulatory muster, then it doesn’t matter what the numbers look like,” Martin said in a research note. “In the end, while there is potential for regulatory hurdles with either combination, we believe CP’s deal likely has the best odds for approval as there is no network overlap and not a single customer would lose one of its rail options.”
Federal regulators haven't approved any mergers involving major railroads since the 1990s, so new merger rules the Surface Transportation Board wrote in 2001 have yet to be tested. Those rules call for any deal involving one of the nation's six largest railroads to enhance competition and serve the public interest.
The board has also said it would consider whether any deal would destabilize the industry and prompt additional mergers.
Josh Funk, The Associated Press