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Kansas City Southern To Accept Canadian Pacific’s $27B Deal

 |  September 12, 2021

Kansas City Southern announced on Sunday, September 12, it planned to accept Canadian Pacific Railway US$27.2 billion cash-and-stock acquisition offer as superior to its US$29.6 billion deal to sell itself to Canadian National Railway.

Canadian National now has until the end of Friday to submit a better offer or lose its deal with Kansas City Southern. At stake is the creation of the first direct railway linking Canada, the United States, and Mexico.

Kansas City Southern’s change of heart came after the US Surface Transportation Board (STB) rejected a temporary “voting trust” structure last month that would have allowed Kansas City Southern shareholders to receive the US$325-per-share cash-and-stock consideration under the deal with Canadian National without having to wait for full regulatory approval.

Related: Kansas City Southern Reconsiders US$27B Offer From Canadian Pacific

Canadian Pacific has had its proposed voting trust cleared by the STB. The regulatory certainty this provided convinced Kansas City Southern’s board to switch to a deal with Canadian Pacific, even though its offer was lower than Canadian National’s, according to people familiar with the deliberations.

There is a silver lining for Kansas City Southern. The Canadian Pacific offer it now plans to accept, worth US$300 per share in cash and stock, is better than the US$275 per share cash-and-stock deal that the two companies had clinched in March, before Canadian National gatecrashed it and entered into an agreement with Kansas City Southern in May.

Were Canadian National to lose out to Canadian Pacific, it would receive from Kansas City Southern a US$700 million break-up fee and would be reimbursed for another US$700 million it paid Kansas City Southern to pass on to Canadian Pacific as a break-up fee for terminating their March deal. Canadian Pacific has stated it will cover the cost of this US$1.4 billion that Kansas City Southern would owe Canadian National.

Canadian National has also faced pressure from some of its investors, including hedge fund TCI Management, to abandon its pursuit of Kansas City Southern.

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