Kansas City Southern said it’s backing out of a merger agreement with Canadian National Railway Co. and plans to accept a competing offer from Canadian Pacific Railway Ltd., the latest step in the fight over which railroad would become the first to operate in Canada, the U.S. and Mexico.
Canadian Pacific’s proposal was declared superior even though at about $27 billion it’s lower than Canadian National’s $30 billion offer, which began to unravel last month amid questions over whether it would win regulatory approval. Canadian National has about five business days to negotiate terms that could change the U.S. railroad’s decision, Kansas City Southern said in a statement Sunday.
Canadian National said it’s continuing to evaluate its options and “will make carefully considered decisions in the interests of all CN shareholders and stakeholders and in line with our strategic priorities.”
The months-long saga has now come full circle, after Canadian Pacific and Kansas City Southern initially agreed to a deal in March, only for Canadian National to swoop in with a higher offer. The Canadian companies are battling for the rare opportunity to acquire a U.S. railroad and build a network spanning much of North America.
Canadian Pacific’s offer values the U.S. railroad at about $300 a share. Kansas City Southern ended last week at about $280 in New York trading, up from about $224 before the CP’s overture became public on March 21.
The potential Kansas City Southern deal puts Canadian Pacific on track to be the first railroad to operate in Canada, the U.S. and Mexico, where Kansas City Southern gets about half of its revenue. The combined companies would have 20,000-mile network spanning from Vancouver to Veracruz, Mexico’s largest port on the Gulf of Mexico.
The deal would also allow CP to compete more effectively with Canadian National, which already has a T-shaped network that reaches coast-to-coast in Canada and down to the U.S. Gulf Coast at New Orleans.
The Surface Transportation Board consistently praised the Canadian Pacific-Kansas City Southern deal as an “end-to-end” arrangement. The two networks don’t have overlapping track and meet only in Kansas City.
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