Market Matters Blog

On Aug. 12, the Kansas City Southern (KCS) put out a news release in reference to the recent new bid from the Canadian Pacific Railway (CP) saying. KCS stated its Board of Directors, following a careful and thorough review in consultation with outside financial and legal advisors, has unanimously determined that the unsolicited proposal received from CP on Aug. 10 to acquire KCS in a cash and stock transaction does not constitute a "Company Superior Proposal."

KCS added CP's proposal could not reasonably be expected to lead to a "Company Superior Proposal," as defined in KCS' previously announced definitive merger agreement with the Canadian National Railway.

"The KCS Board reaffirms its recommendation to KCS shareholders to vote in favor of the pro-competitive, end-to-end merger with CN, which will create the premier railway for the 21st century and offers unparalleled opportunities and benefits for customers, employees, shareholders, the environment and the North American economy," KCS said.

"CN and KCS' joint voting trust application is currently under review by the STB," noted the press release.

On Aug. 10, the Surface Transportation Board (STB) announced that it expects to issue a decision on the use of the CN voting trust no later than Aug. 31. KCS and CN are confident that the voting trust meets all the standards and the public interest test set forth by the STB and believe that it should be approved.

According to Associated Press, the KCS later said it may now delay that vote if the STB doesn't issue its decision on a key part of Canadian National's acquisition plan before Aug. 17.

In a press release from the CP late Aug. 12, the CP issued the following statement on the announcement by the KCS Board of Directors that it will adjourn its scheduled Aug. 19 special meeting of stockholders if the STB has not ruled on CN trust proposal by Aug. 17.

"We applaud the KCS Board of Directors' decision to adjourn the Aug. 19 stockholder meeting absent a decision from the STB to give all shareholders and the Board time to receive and consider the STB decision," stated CP.

CP noted that it has always maintained KCS stockholders should have all relevant information, including the STB decision on the CN voting trust, to be able to make an informed decision, avoid being locked into the CN-KCS deal and preserve the ability to consider a better alternative proposal. "The only way for shareholders to ensure they preserve that ability is to vote "AGAINST" the proposed CN-KCS merger and "FOR" adjournment leading up to the proposed adjournment date of Aug. 17," stated CP.

"We are confident that the STB will take the time needed to review the myriad of issues and concerns the CN voting trust raises. We continue to believe that CN's proposed use of a voting trust should not be approved because it is anti-competitive and not in the public interest. We believe that once the STB rules on the CN voting trust, the Aug. 10 CP offer will be deemed superior as the CP-KCS combination has regulatory certainty with the STB approval for the use of a voting trust," CP added in the Aug. 12 press release.

On May 21, the STB released a decision stating it determined that the proposed CN-KCS transaction "will be subject to the agency's current merger regulations and denies a motion to approve proposed voting trust agreement, without prejudice, as incomplete." The STB noted that "while voting trusts can serve some public purpose, they should not be used routinely, but rather should be available only for those rare occasions when their use would be beneficial," and "use of a voting trust is a privilege, not a right, and that (prospective applicants) may not employ a voting trust until we have authorized its use."

As such, the STB said in May it expects "to take a more cautious approach to a voting trust here, and its consideration of whether the proposed use of a voting trust in a potential CN-KCS transaction is consistent with the public interest would be informed by argument on both the potential benefits and costs of such use."

On June 8, the STB issued a decision that instructed CN and KCS to submit for review "certain documents referenced in the applicants' merger agreement for purposes of the Board's consideration of their request for approval of a proposed voting trust."

There has never been any doubt that regardless of the many comments in favor of a CN-KCS merger or those in favor of a CP-KSC merger, that the final decision for this merger likely rests with the STB.

To see the press releases containing decisions already made on either the CN-KCS merger request and the CP-KCS merger request go to: https://prod.stb.gov/….

To see May 17 Market Matters' blog "CN Quest to Merge with KCS Dealt Not One, But Two Blows" go to https://www.dtnpf.com/….

To see July 12 Market Matters' blog "Canadian National Makes Final Appeal for Acquisition of Kansas City Southern" go to https://www.dtnpf.com/….

To see Aug. 10 Market Matters' blog "Canadian Pacific Raises Bid to Acquire Kansas City Southern" go to https://www.dtnpf.com/….

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn

(c) Copyright 2021 DTN, LLC. All rights reserved.