Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Canadian Pacific clinches $27-billion Kansas City Southern deal as rival bows out

Stock MarketsSep 15, 2021 09:50PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: A Canadian National Railway train travels westward on a track in Montreal, February 15, 2015. REUTERS/Christinne Muschi/File Photo

By Greg Roumeliotis

(Reuters) -Canadian Pacific Railway Ltd inked a $27.2 billion cash-and-stock deal to buy Kansas City Southern (NYSE:KSU) on Wednesday after Canadian National Railway (TSX:CNR) Co conceded it could not save its own $29.6-billion deal for the U.S. railway.

The combination will create the first direct railway linking Canada, the United States and Mexico, with a network spanning 20,000 miles and approximately $8.7 billion of annual revenue. It marks the end of a high-stakes bidding war.

The $300 per share cash-and-stock deal that Canadian Pacific (NYSE:CP) clinched is higher than the $275 per share cash-and-stock deal that it had secured in March to buy Kansas City Southern. That deal was scrapped when Canadian National wooed Kansas City Southern in May with a $325 per share cash-and-stock offer.

Kansas City Southern shares were little changed at $281.55 in Wednesday trading in New York.

Canadian National suffered a blow when the U.S. Surface Transportation Board (STB) rejected a temporary "voting trust" structure last month that would have allowed Kansas City Southern shareholders to receive the deal's consideration without having to wait for full regulatory approval.

Canadian Pacific has had its proposed voting trust cleared by the STB and so Kansas City Southern shareholders will receive the $300 per share in cash and stock even if the regulator shoots down the deal. The regulatory certainty this provided convinced Kansas City Southern's board to switch to a deal with Canadian Pacific, even though its offer was lower than Canadian National's.

Canadian National had also faced pressure from some of its investors, including hedge fund TCI Management Ltd, to abandon its pursuit of Kansas City Southern. Canadian National shares jumped 3.7% on Wednesday to C$150.97, as its investors expressed relief the attempted deal was abandoned.

This is because a new offer would need to compensate Kansas City Southern for the regulatory risk of sticking with the Canadian National deal. This would have likely required a significantly higher price, as well a regulatory break-up fee that would be much higher than the $1 billion Canadian National offered previously.

The STB said last month that even though the overlap of Canadian National's and Kansas City Southern's networks was confined to 70 miles (113 km) between Baton Rouge and New Orleans, the two railways operated parallel lines in the central portion of the United States and could be under less pressure to compete if the voting trust for that deal was approved.

"There have been significant changes to the U.S. regulatory landscape since Canadian National launched its initial proposal which have made completing any Class I merger much less certain, including an executive order focused on competition issued by President Biden in July," the company said in a statement on Wednesday.

There is a silver lining for Canadian National. It is now entitled to a $700 million break-up fee from Kansas City Southern, in addition to the $700 million it paid the latter to pass on to Canadian Pacific as a break-up fee for terminating their March deal. Canadian Pacific had said it will cover both payments.


There are still potential pitfalls for Canadian Pacific. While no major Canadian Pacific shareholder has come out against the Kansas City Southern deal, as happened with Canadian National, Canadian Pacific still needs a majority of its investors to vote for the new agreement.

It is also possible that the STB shoots down Canadian Pacific's deal for Kansas City Southern, even though it approved the voting trust for it. More likely, however, would be for the STB to require some concessions from Canadian Pacific, such as limited divestments or commitments on how much its charges customers, to clear the deal, people familiar with the matter said. It is possible that some of the concessions could erode Canadian Pacific's profitability.

The STB did not immediately respond to a request for comment.

If the STB rejects the deal, Canadian Pacific's voting trust would have to divest Kansas City Southern. Canadian National could then attempt to buy it, though the U.S. railroad has also attracted acquisition interest in the past from private equity firms.

Canadian Pacific clinches $27-billion Kansas City Southern deal as rival bows out

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email