KCS/CP Merger Discussion

Mr. Musser's comment made me chuckle this morning. Foreign roads owning track in the United States and vice versa has been a thing since the Grand Trunk Railway of Canada pushed its rails to Portland, Maine in 1853. The "undermining American independence." line was used a lot by the C&NW against the SOO and GTW during the "great battle for the Milwaukee Road" in the 1980s. It didn't work.

Even though I disagree with his opinion, I do applaud Mr. Musser for taking the time out of his day to make his voice heard. Even though I have been looking at STBs filings for several years, it never occurred to me that I could send in my own!

Anyways, 99.6% of KCS shareholders voted in favor of the merger today.

From Trains Magazine:

KANSAS CITY, Mo. – Kansas City Southern shareholders today overwhelmingly approved the railway’s proposed merger with Canadian Pacific.

The voting trust will take effect on December 14th. KCS shareholders will be getting a fat paycheck that day. Wish I bought some stock when I could!

https://www.kcsouthern.com/media/news/n ... er-with-cp

KANSAS CITY, Mo., December 10, 2021. Kansas City Southern (NYSE: KSU) (“KCS”) announced that the Company’s stockholders have voted to approve the previously announced combination with Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) (“CP”) at today’s virtual Special Meeting of Stockholders (“Special Meeting”). Of the 64.5 million shares voting at the Special Meeting, approximately 99.6% were cast in favor of the adoption of the proposed merger agreement.

The transaction is expected to close on Tuesday, December 14, 2021. KCS stockholders will receive $90 in cash and 2.884 CP shares for each KCS common share held and $37.50 in cash for each KCS preferred share held. Immediately upon close, ownership of KCS will be held in a voting trust pending the Surface Transportation Board’s review and approval of CP’s proposed control of KCS, which is expected to occur in the fourth quarter of 2022.

On December 8, CP’s stockholders voted to approve the issuance of the CP common shares to KCS stockholders in connection with the proposed merger.

As of Friday's closing price, CP's offer is worth $299.32 ... which is about a dollar more than the current trading price for KCS. The gap between CP's offer and KCS's price narrowed over the past three months.

Good luck tax planning over the next sixteen days. It's bad enough for such when mutual funds dump on their shareholders (and my one-time clients when in practice) Capital Gains Distributions that are fully taxable as either Short or Long Term as the case may be.

This transaction is simply a "Re Doubled in No Trump". Any of my colleagues, such as Messrs. Gold and JP, think of how this could be structured as a tax-free exchange? With Cash in hand, pretty hard for me to think of one.

GBN, CPA

The merger documents may provide some insight as to how the $90 per share cash will be paid. I am not a direct owner of any stock so I assume that if KCS is part of the portfolios of any of the funds my retirement is invested in they will receive the payment and reinvest it. Stockholders have had nine months notice that this payment could be coming and voted nearly unanimously to accept the merger so this disbursement is hardly a surprise.

I agree, Mr. Lurker. If one held shares within a Retirement Account (IRA, 401k, or in your case, a 401a) the tax consequences are waiting for you when you, and/or your heirs, are required to systematically liquidate such account.

Yes, I do agree, the shareholders "knew it was coming", but they did not have a definite and determinable amount until not very long ago.

I long since bailed out of KSU on the strength I was "overweight" in the rail sector. My shares were in a traditional (taxable) brokerage account, and I guarantee you I would not be happy confronted with a major taxable event occurring 16 days prior to the Tax Year's end (well, for 99 44/100% of taxpayers; an individual taxpayer, with IRS, approval can adopt a fiscal year).

Why the transaction could not have waited until '22 escapes me.

Gilbert B Norman wrote: ↑Sun Dec 12, 2021 9:15 amYes, I do agree, the shareholders "knew it was coming", but they did not have a definite and determinable amount until not very long ago.

KCS dropped CN's offer and accepted CP's on September 15th. CP's final offer (to be paid Tuesday) was made on August 9th and has the same cash payment as the initial offer announced March 21st.

This train has been coming down the mountain for several months. Hopefully anyone with direct ownership would have consulted their advisors. Or had their advisors alert them of any pending consequences (assuming customer service is still part of dealing with investments).

Gilbert B Norman wrote: ↑Sun Dec 12, 2021 9:15 amWhy the transaction could not have waited until '22 escapes me.

The KCS board wants their money now. Should the merger eventually fail they have picked up a nice premium (34% over the March trading price) for their shareholders. KCS shareholders will not bear the risk that the STB will eventually refuse to allow the merger (other than the risks KCS shareholders that remain CP shareholders will bear).

CP expects that the STB will approve the merger and for their sake I hope that they do receive approval. They WANT to have the combined assets as one railroad. If not approved they will be looking for a buyer or buyers who will allow CP to legally divest of the assets covered by the Voting Trust. Perhaps they will still make money carving it up and selling pieces, perhaps not. But it is CP's risk not KCS'. Playing games with billions of dollars and billions of dollars in assets. And usually winning.

Voting trust has taken effect. KCS shareholders got a fat check in the mail today.

From Trains Magazine:

KANSAS CITY, Mo. — Kansas City Southern’s sale to Canadian Pacific has officially been completed, allowing the KCS shares to be placed into a voting trust while the deal is reviewed by federal regulators.

https://www.trains.com/trn/news-reviews ... ing-trust/

Seems like a previous prediction of mine has come true as CN has requested that CPKC sell the former Gateway Western as a condition of the merger.

I am unable to post the article right now due to a firewall at my current posting location. (For some reason the firewall blocks Trains.com but not Railroad.net?) (I accessed the article on my phone using a VPN but an typing this out on a computer.) The article can be found on Trains Newswire.

If you remember back to when the CN-KCS merger agreement was still in effect, CN wanted to upgrade the former Gateway Western along with portions of the former Illinois Central and Grand Trunk Western to form the "Kansas City Speedway." An intermodal and automotive corridor linking Detroit and Kansas City in competition with NS. There was a little bit of discussion here on weather or not this "Speedway" would be competitive. My opinion is that it would certainly be more competitive than CP's route and less competitive than NS's route. A decent enough in-between if they can deliver on their promises. If not...

Would the STB allow such a thing? One half of me says no simply because there is no loss of competition that would necessitate a sale. The other half of me says yes, simply because of the "activist" STB wants to see competition expanded. From what I read CN would take over the Gateway Western but CPKC would retain trackage rights to serve all current customers. Not like CPKC had much in terms of plans for the line anyways.

Personally, I like CN's offer. Even if it reeks of CN trying to save face from the events of last year...

Of course then there is the Amtrak agreement that was signed a month ago. Probably should get it's own thread!

For the love of me, Mr. Shortline, I'm at a loss to understand why CN would want it.

I've noted these points previously at this discussion, but if they have visions of establishing a Detroit (lots of auto parts made there)- Kansas City (lots of assembly there) "Speedway" handling "just in time" shipments, they don't exactly have anything competitive with their circuitous "sheet music clef" GTW-EJE-IC-KCS (GW) route. While nobody can match the WAB (route of the Canonball), that is outside this discussion. Only way either Canadian would find their way on there would be with a divided Interline bill. The CP (trackage rights)-IHB-MILW is better but still circuitous.

Finally, it's my understanding (I'll stand corrected if need be) that Gateway bridge over Ol Man River is FRA Class 1 with weight restrictions that would require any train of size to be "doubled". Figure two hours for such.

Shortline614 wrote: ↑Thu Jan 13, 2022 11:15 am Seems like a previous prediction of mine has come true as CN has requested that CPKC sell the former Gateway Western as a condition of the merger.

I am unable to post the article right now due to a firewall at my current posting location. (For some reason the firewall blocks Trains.com but not Railroad.net?) (I accessed the article on my phone using a VPN but an typing this out on a computer.) The article can be found on Trains Newswire.


Would the STB allow such a thing? One half of me says no simply because there is no loss of competition that would necessitate a sale. The other half of me says yes, simply because of the "activist" STB wants to see competition expanded. From what I read CN would take over the Gateway Western but CPKC would retain trackage rights to serve all current customers. Not like CPKC had much in terms of plans for the line anyways.

Personally, I like CN's offer. Even if it reeks of CN trying to save face from the events of last year...

Of course then there is the Amtrak agreement that was signed a month ago. Probably should get it's own thread!

Mr. Norman here is CP's response;
https://www.cpr.ca/en/media/cp-responds ... kc-network

Mr. JayBee, unless there is an on-line industry with "oodles" of traffic, I fail to see how that former Alton Route line (GM&O) will really benefit either system.

Sure, for Alton to participate in line hauls from KC, but it will not benefit CPKC in the least.

If I'm overlooking something, be happy to learn. That's why we have a Forum.

Gilbert B Norman wrote: ↑Thu Jan 13, 2022 5:09 pm Mr. JayBee, unless there is an on-line industry with "oodles" of traffic, I fail to see how that former Alton Route line (GM&O) will really benefit either system.

Sure, for Alton to participate in line hauls from KC, but it will not benefit CPKC in the least.

If I'm overlooking something, be happy to learn. That's why we have a Forum.

KCS train pair M-KCVN/M-VNKV will run over 100 cars daily, the traffic is autos and Schneider National containers, plus some chemicals going to CSX. The line also handles occasional unit grain trains to the gulf from the elevator at Jacksonville, IL.

If you didn't read CP's response to CN it said that CN only received 4 cars in interchange from KCS at Springfield in all of 2020, and in a good year like 2019 the total for the year was 133 cars. A big part of the reason for the low total car count is the fact that the two railroads do not connect in Springfield but must interchange through both UP and NS, neither of whom is incentivized to expedite the process.

Gilbert B Norman wrote: ↑Thu Jan 13, 2022 12:50 pmFor the love of me, Mr. Shortline, I'm at a loss to understand why CN would want it.

If only to keep it away from CP?

Well Uncle Warren and Topper have made their requests for remediation if the CP/KCS merger happens

BNSF wants Trackage Rights from Alliance, TX (Metro Jct) to Bossier City, LA to give them a shortcut from the Metroplex to their trackage rights leading to Memphis. Second they want trackage rights from Clinton, IA to Savanna, IL. Their third want is trackage rights from Robstown, TX to the border at Laredo, TX, but only if at some future date they win a Mexican concession.

NS is a little bolder, they want full trackage rights from Meridian, MS to Wylie, TX for Intermodal, automotive, and carload traffic, and a portion of KCS's facilities at Wylie. They also want full rate making authority for any points on the former KCS west of Shreveport. I don't know if that applies to lines north and south of Shreveport if they are slightly west of a north-south line or what.

I could also be that all either party wants is to kill the merger.