• 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

  by justalurker66
Stock performance since March 19th ...
(Percentage is gain or loss since March 19th)
Dates to consider:
March 19th close before CP bids $275 to purchase KCS (then trading at $224)
April 19th close before CN bids $325 to purchase KCS (then trading at $256)
April 23rd - STB approves CP-KCS to use pre-2001 rules
May 6th - STB approves CP-KCS to use a Voting Trust (with minor adjustments)
May 13th close before CN raises their bid to $325 to purchase KCS (then trading at $313)
- CN's bid had dropped to $317 due to CN stock price drop
May 14th - CP 5 for 1 stock split (announced in January, stockholder approved April 21st)
(Dollar amounts are per share of KCS- traded as "KSU".)
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  by Gilbert B Norman
Somewhere within this fast becoming - and understandably so - "epic", there is reference to a "Detroit-Kansas City Speedway" CN expects to develop post merger.

To that I say HUH!!!!

To truly have such, they would have to wrest the Wabash away from Topper; uh, I don't think he is about to sell.

Sure a routing of Funk to Chi, IC to Gillman thence Springfield, thence KCS to KC is there, but let's consider the practicalities. First, the FUNK is simply a "musical Clef" from Detroit to Chicago touching both Lansing and South Bend; yes Class 3, and 4 where Amtrak operates over it and further true that the interchange between FUNK and IC has been "smoothed out" post merger. But Gillman-Springfield, which hasn't seen a passenger train ("Green Diamond") this side of A-Day couldn't be more than Class 3. Now the former GM&O acquired by KCS from the Short Line preceding SP ownership, I shudder to think what kind of shape that is in. I'm willing to place my bets that there are weight limits on that "rinky dink looking" bridge over Ol' Man River at Louisiana, MO. Any train of consequence would need be "doubled" X-ing it.

So not sure "who's smoking what at Rue d' Gauchetiere" , but there's a long way to go until you have anything that could be called a competitive routing - especially if you have grabbing some "just in time" auto parts business from CP and their CRSA access to facilities.

Finally though, allow me to concede that for traffic entering the US through the Port Huron gateway, things are a bit more direct. Still, CN and some Loonies will part ways for a competitive routing.
  by justalurker66
CN9634 wrote: Mon May 17, 2021 2:19 pm Well this makes things more interesting

https://dcms-external.s3.amazonaws.com/ ... /50764.pdf
STB: "The Board determines that this proposed transaction will be subject to the agency’s current merger regulations and denies a motion to approve a proposed voting trust agreement, without prejudice, as incomplete."

Not surprising. CN already stated that their offer should be under the current merger regulations.

The Voting Trust was denied because the request was incomplete:
"The voting trust agreement attached to CN’s motion for approval is incomplete, insofar as it identifies (as “Exhibit A to Voting Trust Agreement”) and includes multiple references to a merger agreement, which is not attached. As a result, the Board declines to establish a comment period and review the proposal pursuant to the process prescribed in 49 C.F.R. § 1180.4(b)(4)(iv). CN’s motion for approval of its voting trust agreement is denied, without prejudice, as incomplete."
  by JayBee
TCI Fund the largest shareholder in CP and the 5th largest at CN sent a letter to CN's Board saying that CN is making a big mistake in biding for KCS. I haven't read CN's agreement with KCS, but TCI says that the agreement is conditional on CN getting a Voting Trust. The letter warns CN that the STB has indicated that the Voting Trust agreement will face greater scrutiny than the CP-KCS trust. It warns CN that they will lose $2 billion CDN if the Voting Trust is rejected. It also warns that in their opinion CN is likely to have the deal rejected, and if the Voting Trust is enacted then CN could be facing a loss of up to $18 billion CDN which would wipe out almost all the shareholder's equity built up since the formation of the company. TCI indicated that if the Voting Trust is rejected then it will demand that the Chairman of the Board Pace, and CEO JJ Ruest resign. CN replied that they respectfully disagree.

https://www.tcifund.com/files/corporate ... 202021.pdf
  by justalurker66
Regardless of the railroad companies board decisions to attempt a merger, the decision to merge MUST be approved by each company's shareholders. TCI Fund and all other shareholders of the final pair will get their vote.

CN posted their merger agreement today:
https://dcms-external.s3.amazonaws.com/ ... 302373.pdf

$700 million to CN if KCS breaks the deal.
$1 billion to KCS if the deal is blocked by the government.

CN will pay KCS through the holding company to pay CP their $700 million for breaking the deal. If KCS breaks the deal with CN they are required to refund that payment.
  by eolesen
I hate it when there's little to no mention of conflict of interest and no context.

TCI owns 2.93% of CN, not nearly as impressive as saying "Fifth largest shareholder".

They also own 8.3% of CP, however, so it sounds to me like perhaps they're more concerned about that $4.3B they hold in CP than they are about the $2.2B invested in CN.

CP is 79% institutional owned, where CN is 59% institutional. That does make the CN shareholder voting a little more interesting in that individual shareholders have considerably more of a say than the banks do. How many of them are interested in keeping the company smaller vs. possibly being a powerhouse?...

KSU is over 80% Institutionally owned, so the banks essentially decide their fate.
  by JayBee
justalurker66 wrote: Tue May 18, 2021 7:54 pm Regardless of the railroad companies board decisions to attempt a merger, the decision to merge MUST be approved by each company's shareholders. TCI Fund and all other shareholders of the final pair will get their vote.
I finished reading the merger agreement and can find no mention of where CN shareholders will vote on the merger. Yes the Merger Co. shareholder will vote, but that is CN itself, the agreement does say that KCS shareholders will vote.

In the Agreement CN is referred to as "Parent"
The newly created CN subsidiary is "Merger Co."
KCS is referred to as "Company"

Merger Co, will merge with KCS with Merger Co being the surviving entity and will immediately change its name to "Kansas City Southern" after the merger.
  by justalurker66
JayBee wrote: Tue May 18, 2021 10:38 pmI finished reading the merger agreement and can find no mention of where CN shareholders will vote on the merger.
The wording I thought I saw is not where I thought I saw it. Strange days when a company can create a child company and merge it with another company without shareholder approvals.
  by justalurker66
JayBee wrote: Tue May 18, 2021 7:28 pm TCI Fund the largest shareholder in CP and the 5th largest at CN sent a letter to CN's Board saying that CN is making a big mistake in biding for KCS.
https://www.tcifund.com/files/corporate ... 202021.pdf
"It is now clear that CN should abandon its pursuit of KCS unless the merger agreement is amended such that it is not conditional on a voting trust being approved."

According to the press release last Friday, the CN deal with KCS is binding on CN and will be binding on KCS only if accepted (KCS can walk away until Friday). Which means "abandon its pursuit of KCS" would be a termination or breach of contract that would leave CN liable to pay KCS a lot of money. Unless CN can convince KCS to mutually end their agreement, CN is committed. The ball is entirely in KCS' court.
  by johnpbarlow
According to the Wall Street Journal alert of 5/20/21 at 0915, CP Declines to Increase its offer for KCS. Here's the brief alert's sub-head "The rail operator to emphasize hurdles Canadian National faces in rival offer"
https://www.wsj.com/articles/canadian-p ... 1621513725

Additionally, CP issued a news release today containing the full text of a letter sent by Keith Creel to the KCS BoD:Board of Directors: https://www.cpr.ca/en/media/cp-calls-on ... e-proposal
Dear Members of the Kansas City Southern ("KCS") Board of Directors:

On behalf of Canadian Pacific Railway Limited ("CP"), I am writing in response to the notice KCS delivered to CP on May 13, 2021, regarding the KCS Board's determination that the revised proposal received from Canadian National ("CN") that day (the "Revised CN Proposal") constitutes a "Company Superior Proposal" (as such term is defined in our Agreement and Plan of Merger, dated March 21, 2021 (the "CP-KCS Merger Agreement").

Since the KCS Board received CN's initial unsolicited proposal on April 20, 2021, CP has been supportive and understanding of the KCS Board's need to fulfill its fiduciary duties to its shareholders and to better understand what CN was purporting to offer. However, as you know, CP has always believed that CN's proposal is illusory and simply an attempt to dismantle the unique, pro-competitive deal that CP and KCS have agreed upon, a deal which provides compelling short-term and long-term value for our shareholders—value that is actually achievable. While we respectfully disagreed with the KCS Board's decision last week to deem the Revised CN Proposal a Company Superior Proposal, we could understand how the KCS Board might come to that decision given its fiduciary duties. Nevertheless, we have remained confident that the Surface Transportation Board (the "STB") would ultimately reject CN's proposal to use a voting trust, given that allowing CN to close into trust would not be in the public interest.

Not surprisingly, in the four days following the KCS Board's receipt of the Revised CN Proposal, a number of things have happened which, we believe, should lead you to conclude that the Revised CN Proposal is not a "superior proposal" as defined in our merger agreement. I am referring, of course, to (1) the Department of Justice's ("DOJ") comment publicly filed with the STB on May 14 (the "DOJ Comment"), and (2) the STB's decision on May 17 to apply the more stringent 2001 merger rules to CN's proposal to acquire KCS and CN's effort to obtain approval to use a voting trust (the "May 17 Decision").

The STB's May 17 Decision follows the DOJ Comment, which stated that "[CN's] proposed acquisition raises sufficient competition concerns on first blush that [sic] CN should be prohibited from using a voting trust." The dangers to competition posed by a CN-KCS transaction, which are in stark contrast to the end-to-end nature of a CP-KCS transaction, include "the potential elimination of direct, 'parallel' competition on routes served by both railroads, for example between Baton Rouge and New Orleans." The DOJ further noted concerns relating to the potential elimination of "parallel lines that do not presently serve the same origin-destination pairs", which the STB explained "may be used to compete to attract 'build outs' from a shipper served by one railroad to the network of the other, for example on north-south routes through much of Mississippi."

In addition to citing the DOJ Comment for the statement that such "threats to competition would be present immediately after the CN voting trust is consummated," in the May 17 Decision, the STB made a number of key statements regarding its views on CN's proposed transaction, including:
That CN's proposed transaction "poses issues that the current merger rules were designed to address, namely the potential competitive impacts of a merged entity with some degree of overlapping routes and presently existing direct competition—characteristics that would appear to pertain to the CN and KCS systems."
That "while CN contends that there is 'no cause for concern' as to whether a sale out of divestiture would 'harm CN's financial integrity,' the level of debt being utilized by CN to fund the proposed merger, as well as the substantial premium CN has offered for KCS, call this assumption into question."
That "use of a voting trust is a privilege, not a right."
That voting trusts "should be available only for those rare occasions when their use would be beneficial."
And lastly, that the STB "expects to take a more cautious approach to a voting trust here."

The May 17 Decision shows that the STB views CN's proposed voting trust through the same lens as the DOJ—as a threat to competition in the railroad industry and a threat to the public interest. The fact that the STB chose to affirmatively express these views in the May 17 Decision (rather than simply denying CN's motion for approval of its voting trust agreement on the available procedural grounds of incompleteness) also sends a clear signal on the STB's stance should CN move forward with renewing its motion for approval to use a voting trust.

On the basis of these recent events, which have triggered significantly increased stakeholder opposition, we believe that the KCS Board has a clear path to conclude that the level of risk surrounding a CN-KCS transaction and CN's ability to close into voting trust are too high in order for the Revised CN Proposal to continue to constitute a Company Superior Proposal. Recently one of CN's largest shareholders, TCI, also came out publicly to say that CN's proposal is unlikely to receive regulatory approval and to recommend to CN that "it is time to end this ill-advised misadventure." As we have been saying from the start, CN's proposal is illusory, and the KCS Board, in fulfilling its duties to its shareholders to explore the proposal, has helped shine additional light on this fact. We respectfully believe there is no longer any basis to terminate the CP-KCS Merger Agreement. The best way for the KCS Board to fulfill its fiduciary duties in light of recent developments would be to continue to pursue the CP-KCS combination, which already has the benefit of STB approval to use a voting trust.

Respectfully, we feel it would be destructive to our mutual interests to engage in a bidding war in reaction to CN's illusory offer, particularly where our existing CP-KCS Merger Agreement provides KCS's shareholders with a significant premium. We look forward to closing this chapter on the CN proposal and continuing to work together towards our common goal to complete the CP-KCS combination, the only viable Class 1 merger, which will be transformational and creates meaningful and compelling immediate short and long-term value serving the best interests of our respective customers, stakeholders and the North American economy.

As you know, this is a unique opportunity to bring together the two best performing Class 1 railroads for the past three years on a revenue growth basis. Our similar cultures, shared focus on safety and collective commitment to providing significant positive impacts for our respective employees, customers, communities, and shareholders has not changed. This end-to-end combination, with a focus on growth, also ensures the viability of KCS's full network going forward, without the need to address issues related to overlap. Bringing together our two railroads, that have been keenly focused on providing quality service to customers, will unlock the full potential of our networks and our people.

On a personal note, I have never been more excited about this combination. I am ready to work tirelessly for our shared interests in the years ahead – and I believe I have a lot of years left. CP's proven track record of performance and its record as the safest Class 1 railroad for 15 consecutive years will serve KCS well. We will, in turn, benefit from your leadership and expertise as we grow sustainably, together.

In closing, we are excited about this once-in-a lifetime partnership and remain committed to everything this opportunity presents. These two companies have long, proud histories and an even brighter future, together.

Respectfully yours,
Keith Creel
President and Chief Executive Officer
Canadian Pacific
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