Canadian Pacific makes new bid in takeover battle for Kansas City Southern

Canadian Pacific Railway (CP.TO) has re-entered the battle to take over Kansas City Southern (KSU), submitting a new stock-and-cash bid valued at $31 billion.

The new proposal announced Tuesday is still less than the offer made by rival Canadian National (CNR.TO), but CP says its bid "offers significantly higher regulatory certainty than the proposed CN merger and significantly higher value than our previously agreed combination."

"We've had a lot of opportunities to engage with KCS shareholders. We've heard it loud and clear that shareholders want certainty that's critically important," CP chief executive Keith Creel said on a conference call with analysts on Tuesday.

"That's what this deal offers: value certainty and deal certainty."

The new bid comes nine days before KCS shareholders vote on CN's rival offer.

CN and CP had been locked in a battle over which railway would take over KCS. At stake is the creation of the first railway in North America that would connect Canada, the U.S. and Mexico, as well as capitalize on the USMCA trade deal.

In May, KCS terminated its merger agreement with CP, accepting a takeover offer from CN valued at $33.6 billion. Creel wrote in a letter to the KCS board of directors that the company opted not to engage in a bidding war with CN in May as it would have been "destructive to CP shareholders."

"However, we believe that now is the right time for us to re-engage with KCS, as the regulatory uncertainty of the proposed CN merger has placed KCS stockholders in the unfortunate position of having to vote on the proposed CN merger and, as a consequence of approving such proposal, eliminate KCS's ability to consider superior offers, all the while not having any level of certainty with respect to whether the STB will approve CN's use of a voting trust," he wrote.

Creel also wrote that CP has a clear path to gaining approval for its voting trust from the U.S. Surface Transportation Board (STB) and that the deal with CP will be evaluated under pre-2001 merger rules that are less stringent than the rules the CN deal would be evaluated under.

CN is awaiting a decision by the STB on its plan to set up a voting trust that would acquire KCS and hold the company during the regulator's review of the overall deal. The STB has already approved CP Rail's use of a voting trust.

"KCS stockholders should not assume that there is any certainty of value in the proposed CN merger given the level of uncertainty as to whether the STB voting trust approval or final approval of the combination will be obtained by CN, especially in view of President Biden's recent executive order on 'Promoting Competition in the American Economy'," Creel wrote. Biden's order is aimed at increasing competition in various sectors, including the rail industry, and CP has argued that the CN-KCS deal would create competition issues and reduce options for rail customers.

In a statement on Tuesday, CN says its offer "remains superior and the best option for both companies' stakeholders to deliver on a combination that will enhance competition and provide new servicing options for customers."

With files from the Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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