• CANADIAN NATIONAL ENTERS BIDDING WAR WITH CANADIAN PACIFIC FOR KANSAS CITY SOUTHERN

  • For topics on Class I and II passenger and freight operations more general in nature and not specifically related to a specific railroad with its own forum.
For topics on Class I and II passenger and freight operations more general in nature and not specifically related to a specific railroad with its own forum.

Moderator: Jeff Smith

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  by justalurker66
 
eolesen wrote: Wed Apr 28, 2021 2:24 amThe waiver exists for KCS and any other Class 1, no?
If the CP bid had never been filed, wouldn't KCS+CN have been considered under old rules per the waiver?...
The waiver isn't instant - which is why CP had to ask for it to be applied. The STB left the door open in 2001 to say no depending on the circumstances of the eventual KCS merger.
lensovet wrote: Wed Apr 28, 2021 4:41 amCN themselves offered to have the deal be considered under 2001 rules?
Yep. CN assumed neither CP or CN would get the waiver. Now that CP got the waiver CN is claiming that their offer will fully comply with the law, inferring that CP's offer is somehow illegal. It is not. The STB's decision to grant CP-KCS a waiver is legal. CN knows this, but they are playing to the DOJ and the public with their complaints.
  by BandA
 
I'm getting confused; Is the CN deal sufficiently "sweeter" that KCS can afford to pay the breakup penalty to CP? What if KCS accepts CN's offer but STB says no?

I would assume CP will have to sweeten their offer. If CP has to pay more does the deal still make sense for them?
  by justalurker66
 
BandA wrote: Wed Apr 28, 2021 9:50 pmI'm getting confused; Is the CN deal sufficiently "sweeter" that KCS can afford to pay the breakup penalty to CP? What if KCS accepts CN's offer but STB says no?
The CN offer is $3 billion more than the CP offer - so I suppose that covers the difference. :wink:

The reality is that the purchaser (CP or CN) gives KCS stockholders stock in CP or CN plus cash. CP and CN are not paying the company to purchase KCS, they are paying the company's owners. So the extra $3 billion (or any sweetening CP has to do) would not go into the company's accounts to pay their obligations, it would go to the KCS stockholders.

What happens if KCS chooses CN and the STB says no? Well that depends on the voting trust. If CN gets their voting trust approved then KCS shareholder will be paid up front. If the sale is eventually not allowed CN will need to transfer ownership to someone else. Wouldn't it be funny if that turned out to be CP?

If CN doesn't get their voting trust approved then there is no transfer and no payment until the STB approves the deal. There may be some penalty CN will pay KCS if the deal eventually fails - but the CN-KCS deal has not been negotiated yet.
BandA wrote: Wed Apr 28, 2021 9:50 pmI would assume CP will have to sweeten their offer. If CP has to pay more does the deal still make sense for them?
Probably. I don't see CP getting away with not sweetening the deal with KCS stock now trading higher than CP's offer. But it KCS chooses CN and the deal fails that sweet offer may no longer be there.

If the deal fails CN will be better off without a voting trust - unless they can sell KCS for more than they pay for it.
  by JayBee
 
CP has announced that they will not be sweeting the deal. If the voting trust is approved, but the deal falls through because of STB imposed conditions, I wonder if they would try to sell KCS to someone like G&W. Or could they spin it off to CN's shareholders?
  by justalurker66
 
JayBee wrote: Thu Apr 29, 2021 11:18 amCP has announced that they will not be sweeting the deal.
That attitude may change. It depends on how accepted the CN offer becomes. KCS may use the CN offer to leverage a higher price, but the leverage only works if CN's offer is viable.
JayBee wrote: Thu Apr 29, 2021 11:18 amIf the voting trust is approved, but the deal falls through because of STB imposed conditions, I wonder if they would try to sell KCS to someone like G&W. Or could they spin it off to CN's shareholders?
The first question for G&W (and Watco and other regionals) would be do they want to be a Class I. It would probably be better for the industry for KCS to be operated by people with railroad experience instead of investment funds.
If CP-KCS fails to receive STB approval I would not expect CN-KCS to receive approval. CP-KCS is a much easier deal to approve.

If the KCS board chooses the unsolicited CN offer over the CP offer and they manage to get to the level of having a voting trust before the STB shuts down the deal then I can see some deal worked out with CP. I expect egos would probably get in the way of economics and CN would try to sell to an investment fund or break up KCS before selling to CP. But at the end of the day it would not be CN's choice! The whole point of a voting trust is to allow KCS to operate independently of CN (or CP) until the STB approves the transfer of control. If the STB does not approve the transfer of control it would be up to the voting trust who they would approach to buy the company from CN (or CP). Any attempt by CN to steer the trust away from CP would not be allowed.

Voting trusts are good if there is a reasonable chance of final STB approval but are messy if the deal eventually falls through.
JayBee wrote: Fri Apr 30, 2021 11:33 amAnybody think that CN lawsuit against the STB is more about the KCS acquisition than about the Massena Line?
Not me. I believe that lawsuit is about the Massena Line. The STB rejected a provision in the line sale that led to the deal falling through. CN and CSX believe they had the right to make that provision - CN did not object to the provision.

I do not expect the STB to be swayed by filed lawsuits. If a court makes a decision against the STB's ruling then there may be an effect on future STB rulings - but the proposed CN-KCS deal is a merger, not a line sale between two companies that would continue to exist and compete after the sale. The current lawsuit would not apply.
  by Gilbert B Norman
 
Guess who is now, with a 2% stake, a large CN shareholder?

Melinda; that's who.

Fair Use:
.Mr. Gates also transferred to his wife some of his holdings in Canadian National Railway Co. and AutoNation Inc., the biggest owner of U.S. car dealerships, according to other SEC filings. The railway stake, about 1.9% of the company, was valued at $1.55 billion at Wednesday’s closing price;
Who knows what this transfer from Bill will have on the proposed KCS transaction. Bill reportedly is "pals" with Warren, so if there is any foundation to such, it could easily impact the transaction.

I still hold Warren will be heard from before its all over.
  by BandA
 
Unlike Warren Buffet who is in lower tax bracket than his secretary :wink: , Bill & Melinda are presumably both in the top tax bracket. So presumably they are jiggering their portfolios to match their investment styles, needs for dividends, and equalizing cap gains? If he transfers his ownership to his former wife then he is no longer an "insider" and could buy more without triggering restrictions. But I'm sure it's mostly which stocks pay dividends and which person needs the cash flow to pay for houses & traveling. CN has a 1.8% dividend at the current price of US$110
  by JayBee
 
Gilbert B Norman wrote: Thu May 06, 2021 4:47 pm
I still hold Warren will be heard from before its all over.
Mr. Buffett has been heard concerning the battle for KCS, and he thinks that both CN and CP are bidding more than KCS is worth. The full quote can be found in his presentation at the Berkshire Hathaway Annual Meeting.
  by justalurker66
 
Shortline614 wrote: Thu May 06, 2021 4:41 pmThe STB has approved the use of a voting trust for the CPKC merger.
And the STB considers their action to be a full review (pending the minor modifications they require).

CP is happy:
"Following this critical milestone, we are proceeding full steam ahead to complete this historic combination, creating the first truly North American single line railroad," said CP President and Chief Executive Officer Keith Creel. "We are continuing to prepare our formal merger application and proxy filing for a shareholder vote in the near future."

As for CN: "Confident the STB will reach same decision with CN’s identical voting trust"

"CN is encouraged by the STB’s decision today to approve the Voting Trust for CP’s proposed acquisition of KCS. The STB applied the same public interest factors that CN stated should apply to both Voting Trusts. For the reasons given in the STB’s decision, CN is confident that the STB will reach the same decision with respect to the identical Voting Trust put forward for CN’s proposed acquisition of KCS. Approving both Voting Trusts will allow KCS to choose the bid it judges to be best for its shareholders."

The overconfidence continues. :-)
  by justalurker66
 
Based on Friday's closing stock prices:
CP's bid for KCS is now worth $284.50 per share (CP stock price rose 4.88% since the offer was made in March with the gain coming after the STB approval of the voting trust).
CN's bid for KCS is now worth $318.99 per share (CN stock price fell 4.88% since the offer was made in April, although the current price is better than the 7.85% loss after announcing the KCS offer).

KCS's closing stock price was $305.22 per share, up 36.16% from when the CP-KCS deal was announced.

Stock prices are obviously subject to fluctuation - the final value of the deal will not be known until KCS is absorbed into whichever company they choose to join.
  by CN9634
 
There is a time value of money component for this deal as well--- the CN voting trust decision will take time while the CP deal moves on with some hurdles already tackled. At a certain point, the feasibility of one deal over the other may provide a greater value... remember a dollar today is worth more than a dollar tomorrow (due mostly to mortality and the likes). Even Motley Fool thinks the CP deal may have a stronger value proposition and is more likely at this time to succeed. Even if the CN voting trust is confirmed, it will take literal years for the deal to be evaluated and decided due to the amount of opposition and concession actions required to get it through the STB. And what if the deal busts or is fractured? The debt burden will also be a major setback for CN, who is seemingly in the business of throwing around $$$. I'm still of the mind that CP is the ultimate winner, as if their deal gets rejected they get a cool $700M, and then the opportunity for their own carve out of the CN/KCS deal which would be KCS lines in the US, potentially other access into MX (where does KCSM and Ferromex interchange?). Lots of latitude for them, CN conversely has less levers in their strategy... what is their recourse if STB says no and likewise KCS?
  by Pensyfan19
 
Sold!

https://www.trains.com/trn/news-reviews ... ger-offer/
MONTREAL — The battle for Kansas City Southern appears to be over.

KCS today accepted Canadian National’s $33.6 billion bid to create the first railroad linking Canada, the U.S., and Mexico. KCS said it would break the $29 billion merger agreement it reached in March with Canadian Pacific in favor of CN’s “superior offer.”

CN offered KCS investors $325 per share, which includes $200 in cash and 1.129 shares of CN common stock for each share of KCS. KCS shareholders would own 12.6% of the combined company. CN also agreed to pick up the tab for the $700 million KCS must pay CP as a breakup fee.

Canadian Pacific has five days to respond to this offer. I remember seeing an article stating that CP wouldn't raise their $25 billion bid against CN's $30 billion, I considered that a deal-breaker for KCS. I'm not sure how the STB is going to react to this since CN already has a large amount of territory in that region, but they would have more transfers/connections with KCS trackage. I guess CN has to update their heritage unit fleet now...

CP has also stated that if CN took over KCS, they would have to find another class I to merge with, so that'll be something to keep in mind for the near future... Please don't take over BNSF.
  by justalurker66
 
Not "sold" but closer (if the offer is accepted).

KCS Press release ...
https://www.kcsouthern.com/media/news/n ... r-proposal

Kansas City Southern (NYSE: KSU) (“KCS”) today announced receipt of a revised acquisition proposal from Canadian National Railway Company (TSX: CNR, NYSE: CNI) (“CN”). Under the terms of CN’s revised proposal, each share of KCS common stock would be exchanged for $200 in cash and 1.129 shares of CN common stock. The proposal is binding on CN and may be accepted by KCS at any time prior to 5:00 pm EDT on Friday, May 21, 2021. The transaction would be subject to approval by the stockholders of KCS, approval by the Surface Transportation Board of a voting trust, receipt of other regulatory approvals and other customary closing conditions.

KCS has notified CP that it intends to terminate KCS’s merger agreement with CP and enter into the definitive agreement with CN, subject to CP’s right to negotiate amendments to the merger agreement for at least five business days and the KCS board’s further determination as to whether any such amendments would cause the CN proposal no longer to constitute a “Company Superior Proposal.”
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