Report: Canadian Pacific to raise bid for Kansas City Southern (updated)

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CALGARY, Alberta — Is Canadian Pacific preparing a higher offer for Kansas City Southern?

The Wall Street Journal is reporting (paywalled) that CP’s board met today to authorize a new offer worth about $300 per share. That’s up about $25 from CP’s final offer to KCS, but still short of Canadian National’s offer that’s valued at about $325 per share.

CP CEO Keith Creel had said repeatedly that his railroad would not sweeten its offer for KCS because it could not win a bidding war with larger rival Canadian National.

CP and KCS reached a $29 billion friendly deal in March, but CN swooped in with a $33.6 billion offer that KCS accepted in May.

KCS is holding a shareholder vote on Aug. 19 to consider CN’s offer. The KCS board has recommended that shareholders approve CN’s bid. An influential shareholder advisory company last week recommended that KCS investors approve the CN merger proposal, as well.

Last month CP filed a dueling proxy form asking KCS shareholders to reject the CN bid [see “Canadian Pacific asks KCS stockholders to vote against …,” Trains News Wire, July 30, 2021].

Advisory firm Institutional Shareholder Services noted that “while CP is soliciting votes against the transaction, it has not provided KSU shareholders with any actionable alternative, let alone one that bridges the divide between its initial offer and CNI’s offer.” [See “Shareholder advisory firm says KCS investors should back CN deal,” News Wire, Aug. 9, 2021]

That paragraph in the ISS report is what apparently prompted CP’s new bid for KCS.

“CP has always said it wanted to do a friendly deal with KCS and that remains true,” Creel said last month. “CP would have preferred not to appeal directly to KCS’s stockholders, but given the impending vote on CN’s proposal, we believe we have no choice. What we are doing here is simply contesting the vote on the CN-KCS proposal because a ‘yes’ vote now would lock KCS stockholders in until February 2022, instead of their being free to consider other, better, options.”

The Surface Transportation Board is considering CN’s request to put KCS into a voting trust as a first step of the merger review process. The decision is expected soon.

“We want to ensure KCS stockholders are aware that a vote today, without the benefit of an STB decision on the CN voting trust proposal and without a chance to consider other proposals until the spring of next year, would not be in their best interests,” Creel said last month.

CP declined to comment on the Wall Street Journal report.

The STB in May approved CP’s request to put KCS into a voting trust. The board also said it would review a CP-KCS merger under the older, less stringent review rules.

The CN-KCS merger would be reviewed under the board’s untested rules that date to 2001.

With its new offer, CP is trying to see if KCS shareholders will consider a lesser offer that might have more regulatory certainty than CN’s deal.

— Updated at 4:02 p.m. CDT with additional details, CP declining comment

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