Canadian Pacific and Kansas City South reached a difficult $31 billion deal

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Kansas City South Update

Kansas City Southern Railroad has agreed get After terminating the US$34 billion transaction with Canadian Nationals, the competitor Canadian Pacific acquired US$31 billion (including debt). This is the culmination of a fierce acquisition war that will create a link between Canada and Mexico through the United States. Single railway.

Before the KCS board of directors decided to reach an agreement with CP, the US regulator made it clear at the end of last month that the proposal previously agreed between the Missouri-based group and CN is unlikely to receive their approval.

KCS is the smallest of the seven Tier 1 rail operators that dominate the freight activities of the United States, and has long been regarded as the only asset that can be acquired by competitors in a highly integrated industry. The last big deal happened in 1999, when CSX and Norfolk Southern took over and carve up Conrail.

CP and CN have been at war for several months as both parties are trying to take advantage of the recovery in North American trade New free trade agreement Between Mexico, the United States and Canada.

CP reached an agreement for the first time in March to acquire KCS for approximately US$29 billion (including debt). The transaction was originally reported by the Financial Times and was valued at US$275 per share, including US$90 in cash, and the rest in CP shares.

Later, CN blocked the transaction with a cash and stock bid of approximately US$320 per share, and the company’s valuation including debt was approximately US$34 billion. The KCS Board of Directors approved the proposal in May.

this Turning point In the six-month legend, the US Ground Transportation Commission rejected CN’s request to establish a temporary voting trust on August 31, through which KCS shareholders will receive compensation before the transaction is fully approved by the regulator.

The regulatory decision frightened KCS investors, who began to worry that the merger with CN would eventually fail.It also caused the U.S. Group’s board of directors to reconsider a CP’s new offer, The valuation of KCS in cash and stock is $300 per share.

The combined KCS and CP will be the smallest of the six railway operators in North America, and the merger with CN will become the third largest railway operator. STB has previously approved CP’s voting trust.

CN has the right to charge a termination fee of US$1.4 billion. KCS will pay CN a termination fee of 700 million U.S. dollars and need to return an additional 700 million U.S. dollars to the Montreal-based company, which is used to terminate the earlier agreement with CP.

CN will now shift its focus to competing for a proxy battle initiated by the British hedge fund TCI led by Chris Hohn, which is trying to replace the company’s CEO, chairman and four board members.

As a large investor in CN and CP, TCI first criticized CN’s management for pursuing KCS.

The head of CN, Jean-Jacques Ruest, defended his decision to pursue KCS and rejected Hohn’s attacks and accusations of mismanagement of the company.

“Although we were disappointed that we were unable to provide our stakeholders with the many compelling benefits of this transaction, the decision to bid for KCS was a bold strategic move that still brought positive results for CN,” He said on Tuesday.

“We believe that for CN as a responsible trustee of our shareholders’ interests, the decision not to continue the merger with KCS is the right decision.”

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