STB Refuses Voting Trust For CN-KCS Merger; CP Offer On the Clock

Read about it at Trains Magazine.

Brief, fair use quote

Placing KCS into a voting trust — a key first step in the merger process — would potentially harm the public interest in two ways, the board said. The first would be its potential impact on competition between CN and KCS while the merger is under review. The second was if CN were forced to sell KCS if the merger were rejected.

The STB said that the Class I merger rules adopted in 2001 changed the board’s voting-trust standard. But the board said that a voting trust was not essential and that CN and KCS could still proceed with a merger using different deal terms.

STB Decision from their website.

PDF of full decision available.

Executive Summary

The Surface Transportation Board today announced a unanimous decision rejecting the use of a voting trust agreement in connection with the proposed transaction between Canadian National Railway (CN) and Kansas City Southern Railway (KCS). The Board has determined that the proposed voting trust is not consistent with the public interest standard under the Board’s merger regulations.

Unanimous. I have been reading some of the filings referring to the Pan Am purchase and how anti-competitive the government is seeing that deal. It makes sense that CN didn't get the trust.

I don't see comments on the CN or KCS websites but CP is happy:
https://futureforfreight.com/stb-unanim ... t-partner/

Canadian Pacific Railway Limited (TSX: CP) (NYSE: CP) today said the Surface Transportation Board’s (“STB”) decision to refuse Canadian National (“CN”) and Kansas City Southern’s (“KCS”) joint motion for voting trust approval is the right one for rail shippers, the freight rail industry and the North American economy.

“The STB decision clearly shows that the CN-KCS merger proposal is illusory and not achievable,” said Keith Creel, CP President and CEO. “Knowing this, we believe the August 10 CP offer to combine with KCS, which recognizes the premium value of KCS while providing regulatory certainty, ought to be deemed a superior proposal. Today, we have notified the KCS Board of Directors that our August 10 offer still stands to bring this once-in-a lifetime partnership together.”

The guy at TCI Funds (a major shareholder) is calling for CN’s CEI’s head on a platter.

Looking at today's stock prices it looks like the news hit at 1:25pm. CNI jumping up, KCS jumping down, CP dropping as well.

At market close today CP's offer was worth $291.27 (with KCS trading at $280.67). CN's offer was worth $332.80. CN's stock price has returned to where it was the day they made the offer to KCS.

So now that a CN-KCS merger appears to be dead in the water, what happens now?

I’m personally hoping for a CP-KCS merger in the hopefully not-so-vain desire to see some of that Mexico to Canada traffic come into Oak Island here in NJ as CP has trackage rights into there lol.

The CP-KCS voting trust is basically pre-approved (just make the minor changes requested by the STB). Add that to KCS shareholder approval and KCS shareholders get paid. Not a lot more than the current trading price, but still a payday long before the STB rules on the actual transfer of control.

KCS has a shareholder meeting scheduled for September 3rd.

TCI wants ex-CN and UP VP of Operations Jim Vena to become CEO, and ex-CN, CSX, and FEC board member Gil Lamphere to become director:

From Trains Magazine:

MONTREAL – Canadian National’s second-largest investor today urged the railway to drop its bid for Kansas City Southern and called for the resignation of board Chairman Robert Pace and CEO JJ Ruest.

https://www.trains.com/trn/news-reviews ... -decision/

CN has lost 1.7 billion and gotten nothing in return. While JJ Ruest is a fine railroader, leading CN into this complete embarrassment while he should have been focusing on recovering from COVID is reason enough to eject him. Say what you want about Jim Vena, but he has incredible knowledge of CN and its operations and is a perfectly logical choice to succeed Ruset.

Didn't and still don't see the STB allowing CN/KCS in any form

@mmi16 Would a CN-KCS merger even be as good as many said it would? I’ve heard that anything CN buys out decreases in quality over time.

Canadian Pacific Sets KCS Merger Deadline; Applauds STB Decision

Brief, fair use quote

CP’s Aug. 10 merger offer to KCS still stands, Creel says, but he stressed the importance of a Sept. 12 deadline CP set for the KCS board to accept its $300 per share offer. “Our appetite and willingness to keep that offer on the table forever does not exist,” Creel says.

“We all have deal fatigue. My goodness. This has been going on so long,” he adds. CP and KCS announced their merger deal in March, only to have CN come in with a higher offer that KCS accepted in May. KCS initially rejected CP’s sweetened Aug. 10 offer.

Not sure the CP deal would be approved without significant strings. The Biden Administration is not looking favorable at major mergers.

With that stated, I wonder if KCS sees any benefit to having east coast access by merging with CSX.

frequentflyer wrote: ↑Thu Sep 02, 2021 12:50 pm Not sure the CP deal would be approved without significant strings. The Biden Administration is not looking favorable at major mergers.

With that stated, I wonder if KCS sees any benefit to having east coast access by merging with CSX.

There would be no benefit to KCS to merge with CSX since KCS would cease to exist.

The benefit to KCS (in either case) would be their stockholders cashing out. With CP-KCS that cash out opportunity is close. The CP voting trust is effectively approved and a sale could be completed with stockholder approval and minimal paperwork. CSX-KCS would suffer the same fate as CN-KCS - no voting trust. That deal would need to be fully approved before KCS could cash out.

Agreed an STB approval of a CN - KCS merger would have a lot of strings attached. As stated on this forum before, there is a strong case KCS' and CN's former IC north-south routes are parallel and their merger causing a reduction in competition.

Not sure how a CSX - KCS merger makes sense, how many gateways (contact points) do they share? KCS' St. Louis routing is kind of roundabout and CSX doesn't reach Kanansas City. Do they meet in Shreveport? They meet in New Orleans, but that is really roundabout too. I could be missing something, know NS' map better than CSX's.

Do not know why I thought KCS had access to Chicago. Forget the CSX idea. Still think the Biden Administration will frown on this merger. Guess we will find out.