NEARLY two weeks after Canadian National’s (CN) attempt to purchase rival Class 1 Kansas City Southern (KCS) collapsed, KCS has confirmed that its board of directors have determined a revised merger offer from Canadian Pacific (CP) a “Company Superior Proposal” bringing negotiations over the proposed merger to a close.

The deal is worth between $US 27bn and $US 31bn and values KCS at $US 300 per share, a 34% premium based on the CP closing price on August 9 2021 and KCS unaffected closing price on March 19 this year.

The proposal is binding on CP and may be accepted by KCS at any time prior to 17.00 EDT on September 20. This is subject to approval by stockholders, receipt of regulatory approvals and other closing conditions.

After the United States Surface Transportation Board (STB) rejected CN’s attempt to use a voting trust agreement to proceed with the merger with KCS on August 31, KCS has now notified CN that it intends to terminate the KCS merger agreement and enter into a definitive agreement with CP, subject to CN’s right to negotiate amendments to the merger agreement for at least five business days.

CP led the charge to acquire KCS in March and resubmitted a revised offer on August 10 for the railway. The STB approved CP’s use of a voting trust because there are fewer competitive concerns over the merger of the sixth and seventh largest Class 1 railways.

Following the closing into a voting trust, common shareholders of KCS will receive 2.844 CP common shares and $US 90 in cash for each share of KCS common stock held. Additionally, holders of KCS preferred stock would receive $US 37.50 in cash for each share of KCS preferred stock held.

The transaction includes an assumption of $US 3.8bn of outstanding KCS debt.

Should the deal go through it will create the first direct Canada - United States - Mexico railway.

“As we have said throughout this process, CP remains committed to everything this opportunity presents,” says Mr Keith Creel, CP president and CEO. “This merger proposal provides KCS stockholders greater regulatory and value certainty. We are excited to move forward as we work toward making this perfect match a reality.”