Inside Logistics

KCS board stands by CN offer

Says it will delay vote if STB doesn't rule on trust soon


August 16, 2021
by The Canadian Press

Kansas City Southern has reaffirmed its support for Canadian National Railway Co.’s takeover bid, but said it may delay a shareholder vote on the deal next week if a U.S. regulator doesn’t rule on a key voting trust soon.

The railway said if the U.S. Surface Transportation Board does not release its decision on the voting trust by Aug. 17, then it would push the vote scheduled for Aug. 19 to a later date to give shareholders time to consider the decision.

Proxy advisory firms Glass Lewis and Institutional Shareholder Services Inc. have also recommended that shareholders abstain from voting until they know the outcome of the trust decision.

The trust would allow KCS to remain independent while a full review of the transaction is conducted, but allow shareholders to be paid without having to wait for a final decision on the deal.

The Surface Transportation Board, which regulates the U.S. rail industry, has said it will make a decision on whether to allow CN to use the trust by the end of August.

The KCS board also said it stands by CN’s proposal, despite a sweetened bid by Canadian Pacific Railway Ltd. earlier this week.

Not a “superior proposal”

KCS says CP Rail’s new offer, which is up about US$2 billion from its bid earlier this year, did not constitute a “superior proposal” to the CN deal.

CP Rail’s offer valued at US$31 billion is less than CN’s proposal valued at US$33.6 billion, with both proposals including about US$3.8 billion in debt, but CP Rail says its offer comes with less risk for shareholders because it is more likely to be approved by regulators.

The KCS board said it believes the CN deal could be approved.

“KCS and CN are confident that the voting trust meets all the standards and the public interest test set forth by the STB and believe that it should be approved.”

CN said it was pleased by the board’s continued support for the deal and supports a delay in the vote.

CP applauds possible delay

Calgary-based CP Rail applauded the potential delay in the vote in a statement.

“CP has always maintained KCS stockholders should have all relevant information, including the STB decision on the CN voting trust, to be able to make an informed decision, avoid being locked into the CN-KCS deal and preserve the ability to consider a better alternative proposal.”

The company also welcomed the recommendation to abstain on voting from the proxy advisory firms, as well as Glass Lewis’s comments that the “difference between the two offers has narrowed.”

“Some investors may consider the CP offer currently has
materially greater certainty with respect to regulatory approval,
and they may reasonably be of the view that the
probability/risk-adjusted values of the CN transaction and current
CP proposal are effectively equal at this juncture,” wrote Glass
Lewis.

CP Rail has argued that CN has too much overlap with KCS in routes and that CP Rail already has its use of a voting trust approved.

DBRS Morningstar said in a note Friday that CP’s revised bid should have no additional credit impact on the railway.