CP Rail back on track to acquire Kansas City Southern

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Canadian Pacific (CP) Railway’s plan to acquire Kansas City Southern (KCS) and establish the first Canada-U.S.-Mexico railway is back on track after U.S. regulators blocked rival Canadian National (CN) Railway’s merger application late last month.

The KCS board of directors announced on Sunday — the deadline given by CP in its offer — that it has deemed CP’s US$27.2 billion offer as the superior proposal, and that KCS plans to enter into an agreement to be acquired by CP.

The KCS board has also informed CN it intends to terminate the US$29.6 billion KCS-CN merger agreement, subject to a five day period where CN can negotiate changes to the proposal.

The U.S. Surface Transportation Board (STB) rejected the application by CN and KCS to use a voting trust to complete the deal in late August. CN said it is evaluating its options, but several major shareholders have urged CN’s executive to drop its pursuit of KCS.

CP’s offer provides KCS shareholders with “greater regulatory and value certainty,” said Keith Creel, CP President and CEO, in a statement issued Sunday.

CP says a KCS-CP combination would create direct rail links between Western Canada, the Upper Midwest and the Gulf Coast and Mexico, while bringing new competition to Upper Midwest areas in the U.S. that are currently dominated by BNSF or UP.

KCS has until September 20 to accept CP’s offer.

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