Kansas City Southern in talks on dueling rail takeover bids

As deal talks begin, Canadian National railroad says it is receiving broad support for its $33.7 billion bid to buy Kansas City Southern

OMAHA, Neb. — As deal talks begin, Canadian National railroad said Monday it is receiving broad support for its $33.7 billion bid to buy Kansas City Southern.

Canadian National said that more than 400 shippers and other stakeholders have submitted letters supporting its offer, including some who previously supported Canadian Pacific’s $25 billion bid to buy Kansas City Southern. That’s similar to the level of support Canadian Pacific says it has received for its offer.

“Together, CN and KCS will connect North America in a safer, faster, cleaner and stronger way for the benefit of both companies’ stakeholders,” Canadian National’s CEO JJ Ruest said.

Canadian Pacific has said it believes Canadian National’s offer will be doomed by regulators’ concerns about its impact on railroad competition. It said it believes the deal talks between CN and Kansas City Southern are just a formality at this stage. Kansas City Southern said it is still bound by its merger agreement with Canadian Pacific at this stage.

“We fully support the board of KCS in reviewing CN’s offer,” Canadian Pacific CEO Keith Creel said. “We are confident through this process that they will recognize this unsolicited bid is fraught with challenges, uncertainties and regulatory risks that are not present in the seamless, pro-competitive and pro-service CP-KCS combination.”

Canadian Pacific has said 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 near its headquarters in Kansas City, Missouri, but those two railroads don’t overlap elsewhere.

Creel has said Canadian Pacific doesn’t plan to increase its offer for Kansas City Southern at this point because he believes its offer is more likely to be approved by regulators.

But Susquehanna Financial Group analyst Bascome Majors said he believes Canadian Pacific will have to boost its offer to win the merger battle with CN.

Ruest told investors Monday he is sure Canadian National can address any competitive concerns related to its offer, and he believes the merger would actually create new options for shippers.

“We are fully committed to this transaction and confident in our ability to achieve all necessary regulatory approval,” Ruest said. “Overall, we have a better bid, we are a better partner, better railway and the best solution for KCS and the North American economy.”

U.S. regulators haven’t approved any major railroad mergers since the 1990s, and officials have said that generally any deal involving one of the six largest railroads must enhance competition and serve the public interest. The Surface Transportation Board has also said it would consider whether any deal would destabilize the industry and prompt additional mergers.

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