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Railway updates
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Canadian Pacific is set to present a new higher offer to buy Kansas City Southern worth approximately $ 31 billion, including debt, reigniting its battle for the takeover of the U.S. freight railroad with its big rival Canadian National, people briefed on the matter said.
CP’s board of directors backed plan to offer $ 300 per share, against a previous offer of $ 275, less than two weeks before KCS shareholders were called to vote for or against a previous merger deal with CN.
CP had agreed to buy KCS in March, but CN struck the deal with a cash and stock offer worth about $ 320 a share when Target’s board of directors had it. approved in May, valuing the company at around $ 34 billion, including debt.
However, CN’s stock price has since fallen about 5%, reducing the overall value of the transaction.
Some KCS shareholders fear the merger deal with CN could be blocked by the U.S. Surface Transportation Board, which regulates transactions in the industry, with the Montreal group significantly larger than its Alberta-based rival. The regulator signaled in May that CN would face a “greater burden” to show that its deal was in the public interest.
Institutional Shareholder Services, the world’s largest proxy advisor, said KCS shareholders should vote in favor of the deal because they would still be willing to cash CN termination fees if the deal was blocked by regulators . The termination fee is reportedly $ 1 billion.
The STB was due to vote on the KCS-CN merger this week, but those briefed on the matter said the board could wait until after the shareholder vote.
UK hedge fund TCI, which owns stakes in CP and CN, has openly opposed National’s lawsuit of KCS because of the regulatory hurdles it faces. The fund managed by billionaire investor Chris Hohn is CN’s fifth-largest shareholder with a 3 percent stake and CP’s largest investor with an 8.4 percent stake.
CN and CP are fighting to secure KCS assets as it would allow either of the freight rail groups to link their existing operations from Canada to Mexico via the United States at a time when cross-border trade is expected to increase significantly.
CP, which was the first of the two Canadian companies to strike a deal with KCS, initially declined to increase its bid, even after CN launched its bid to buy the company.
While CP’s new offer is still less than the $ 320 per share CN is offering, some shareholders might see it as a better option, as it would be subject to less regulatory scrutiny given it would combine the two smallest players in the market.
The merger of KCS with CN would create the third largest rail operator in North America, while a merger with CP would leave the duo as the smallest of six players.
CP has previously said CN’s larger bid is a sign of the regulatory challenges the company will face if it becomes the successful bidder. Meanwhile, CN has released ads and created a website called Connected Continent to gain support for its offering.
CP, CN and KCS declined to comment.
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