Canadian National (CN) Railway has announced a competing bid to combine forces with the Kansas City Southern (KCS) railway.

CN says its offer represents a 21 per cent premium over the implied value of Canadian Pacific (CP) Railway’s existing agreement with KCS, which was announced in late March.

The CP-KCS deal, which has already been approved by both boards of directors and is up for review by the U.S. Surface Transportation Board, values Kansas City Southern at approximately $29 billion.

CN says its offer use an enterprise value for the Kansas City Southern of $33.7 billion.

“We firmly believe our proposal is far superior to KCS’ existing agreement with CP because it offers superior financial value over the immediate and long-term, a more complementary strategic fit, greater choice and efficiencies for customers and enhanced benefits for employees and local communities,” says Robert Pace, CN’s board chair. “We look forward to engaging constructively with KCS’ board and all relevant stakeholders to deliver this superior transaction.”

In a letter to the KCS board of directors, CN president and CEO Jean-Jacques Ruest says the CN offer would result in $56 in additional value per share to KCS shareholders than the CP deal. KCS shareholders would receive $200 in cash and 1.059 shares of CN common stock for each KCS common share, with KCS shareholders expected to own 12% of the combined company. KCS’ preferred shareholders would also receive $37.50 in cash for each preferred share.

“Our board of directors has unanimously approved our proposal,” writes Ruest. “We and our legal advisors have reviewed the merger agreement with CP and stand ready to reach agreement with you on substantially similar terms, and can share a draft merger agreement with you immediately upon the commencement of discussions.”

CN says it would continue operating the KCS business in the U.S. and Mexico under the Kansas City Southern name and establish Kansas City as the headquarters of the combined company’s U.S. operations. Four KCS directors would also be added to CN’s board.

CP responded to the unsolicited offer from CN later in the day on Tuesday, calling it “illusory and inferior because it creates adverse competitive impacts and raises other serious public interest concerns.” CP says CN’s offer increases regulatory and anti-trust risk for KCS shareholders, and that it would result in reduced competition in major corridors in the U.S.

Either way, the combination of one of Canada’s major railways with KCS would create the first rail freight network to link Canada, the U.S., and Mexico, spanning across Canada down to the U.S. Gulf, and across Mexico.

Related: CP Rail bets on North American trade with $25 billion deal to buy Kansas City Southern

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