Railway merger posed another hurdle | 2021-09-02

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WASHINGTON – The Surface Transportation Board (STB) issued a unanimous decision on August 31 rejecting the use of a voting trust agreement in the proposed transaction between Canadian National (CN) and the Kansas City Southern Railway (KCS ). The move marks a major setback in the months-long saga in which KCS has considered acquisition proposals from CN and Canadian Pacific (CP).

“Here, the board finds that the nominees have not demonstrated that their use of a voting trust would have any public benefit, and further notes that there are public interest risks to competition and divestiture associated with the use of a voting trust in the context of impending enforcement enforcement, ”noted the STB in its decision. “Accordingly, the board believes that the use of a voting trust would not be in the public interest and will deny the candidates’ request for approval of the voting trust.”

Following the STB’s announcement, CN released a response expressing its disappointment with the decision, noting that it is now considering assessing “our options in light of the decision. of the STB ”.

“We remain convinced that our end-to-end pro-competitive combination is in the public interest and that it will provide unprecedented opportunities and benefits for customers, employees, the environment and the North American economy.” , CN said. “The combined company would create the first railway of the 21st century and establish continuous single line service from Canada, through the United States and to Mexico.

“Since announcing the proposed combination with KCS, we have been encouraged by the overwhelming support from customers, employees, local communities and shareholders of both companies. We continue to believe that the combination of CN and KCS would enhance competition, increase North American trade and promote economic prosperity, provide new, faster routes, increase supply chain efficiency and provide additional benefits to the public good.

KCS also expressed its disappointment with this decision.

“KCS intends to adjourn the special meeting of shareholders for KCS shareholders to vote on the definitive merger agreement previously announced with CN and other proposals,” KCS said. “The special meeting is currently scheduled for September 3, 2021 at 9 a.m. Central time.”

CP, meanwhile, called the STB’s decision “good for rail shippers, the freight rail industry and the North American economy.”

“The STB decision clearly shows that the CN-KCS merger proposal is illusory and unworkable,” said Keith Creel, President and CEO of CP. “Knowing this, we believe CP’s August 10 offer to combine with KCS, which recognizes KCS premium value while providing regulatory certainty, should be viewed as a superior proposition. Today we informed the KCS Board of Directors that our offer of August 10 is still valid to bring this once in a lifetime partnership together.

CP’s proposal represents an enterprise value of approximately $ 31 billion, while CN’s proposal involves a total enterprise value of $ 33.6 billion.


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