Canadian Pacific Reaches $27B Deal For Kansas City Southern

Canadian Pacific Railway clinched a deal to take over Kansas City Southern, as a rival dropped its pursuit of the highly coveted railroad after a months long battle, reported Reuters.

The US$27 billion agreement, if completed, would be the first major merger in the industry in the US in about two decades and would create the first freight rail network linking Canada, the US, and Mexico.

Canadian Pacific and Kansas City Southern had reached a US$25 billion deal in March before the rival, Canadian National Railway, submitted a roughly US$30 billion topping bid. That prompted Kansas City Southern to switch partners, before a regulatory panel that must bless railroad mergers denied Canadian National’s plans to use a temporary voting trust, a key element of its proposal. 

Related: CN To Sell Assets To Ease Kansas City Southern Antitrust Concerns

In the wake of that decision, Kansas City Southern on Sunday, September 12, stated it favored a sweetened cash-and-stock offer from Canadian Pacific, which had already received the go-ahead for a similar trust. Canadian National then had five business days to improve its offer or walk away.

In a statement on its decision not to continue pursuing the deal, Canadian National stated the US regulatory landscape has become more challenging for major railroad mergers since its bid was launched. It referred to an executive order from President Biden in July that focused on maintaining and increasing competition in key sectors, including the largest railroads, and suggested the shift could pose an issue for Canadian Pacific.

The decision to back away could appease one of Canadian National’s major shareholders, TCI Fund Management, the London hedge fund that owns a 5% stake in the railroad. On Monday, it threatened a proxy fight to replace board members and Canadian National’s chief executive.