CN attempts to address concerns about its $ 33.6B railroad deal

Canadian National plans to address competitive concerns related to its $ 33.6 billion acquisition of Kansas City Southern by selling a small portion of the rail line.

Omaha, Neb. – The Canadian National Railroad plans to address competitive concerns related to its $ 33.6 billion acquisition of Kansas City Southern by selling a small portion of the rail line.

Canada’s national CEO JJ Ruest said he believed selling 70 of the 27,000 miles of track on the two railroads would help gain regulatory approval for the deal. The railroad resubmitted its application for preliminary approval of the deal on Wednesday and tried to address questions raised by the Surface Transport Board last week.

On Friday, the Canadian National won the bid war for the Kansas City Southern over a competitive bid of $ 25 billion from the Canadian Pacific Railroad, but CP said it planned to continue pursuing regulatory approval for its combination with the Kansas City Southern , So it will be prepared when the CN deal is done. Fails to get approval.

Canadian National said the rail line connecting Baton Rouge and New Orleans in Louisiana is the only area where the two companies overlap directly. Nevertheless, the Canadian Pacific maintains that competition will be at a disadvantage in most parts of the central United States because both the Canadian National and Kansas City Southern operate parallel rail lines that connect the Midwest to the Gulf Coast. Canadian Pacific said its proposed combined rail network would divert more traffic around Chicago, while CN’s plan would send more railcars from an already congested area.

The Canadian National plans to establish a voting trust that will acquire the Kansas City Southern and hold the railroad during the Surface Transportation Board’s lengthy review of the overall deal. Last week, regulators rejected CN’s initial plan for that voting trust because the railroad had not submitted a detailed copy of its merger agreement at the time, but the STB said it would adopt a cautious approach to approve the plan . The board also questioned whether Canadian National’s level of debt to buy Kansas City Southern would undermine the railroad’s financial stability.

“We believe that our initial commitment to eliminate minimum rail overlap and to prepare a case for the CN-KCS combination should allow STB to approve our voting trust,” said Ruest.

CN tried to address the concerns of regulators in its latest application. Ruest said he believes CN would be able to meet the board’s standard and demonstrate that its acquisition is in the public interest. He also said that CN would remain in a strong financial position as it suspended stock repurchases and plans to repay the debt quickly, if it is allowed to acquire Kansas City Southern.

CN’s bid for Kansas City Southern includes $ 200 cash for each KCS share and 1.129 shares of its stock. The deal also includes about $ 3.8 billion in debt to Kansas City Southern.

The Surface Transportation Board has not approved any major rail mergers since the 1990s, so its current merger rules have not been tested. It has generally been said that any deal involving one of the six largest railroads in the country needs to serve the public interest to increase competition and be approved. The board has also said that it would consider whether a deal would destabilize the industry and spur additional mergers.

The Canadian Pacific was approved by the KCS for its plan to use a voting trust to acquire the Kansas City Southern even before the Canadian National’s decision to accept the proposal. CP CEO Keith Creel reiterated Wednesday that he still believes his proposal for Kansas City Southern is better, even if it is lower, because it has a better chance of obtaining regulatory approval. CP has refused to raise its bid.


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