© Robert Philip

Canadian Pacific (CP) has its nose back in front of rival CN in the quest to take over Kansas City Southern (KCS).

The board of the US railway announced yesterday it regarded the offer from the smaller of the two Canadian bidders “superior”.

It said CP’s revised proposal constituted a “company superior proposal’, as defined in KCS’s merger agreement with Canadian National, adding that the determination was made after consultation with outside legal and financial advisors.

CP and KCS top brass agreed in March on a $29bn takeover of the US carrier by the Canadian operator, but the following month, CN mounted a rival bid of $33.5bn, which KCS then accepted.

CP initially declined to raise its offer, stating it wanted to avoid a bidding war, but in August tabled a new bid for KCS of $31bn.

KCS management turned that down, but the situation changed again on 31 August when the US Surface Transportation Board rejected CN’s plans to establish a voting trust to acquire KCS, ruling that this would not be in the public interest, while it could be shielding the carriers from some regulatory oversight.

It also noted that some competitive issues would require closer scrutiny.

CP then reiterated its $31bn offer, but added it was not prepared to “wait indefinitely” for a decision and gave KCS until yesterday to decide.

Unlike a CN-KCS marriage, a merger between KCS and CP is not subject to tighter review requirements or face a veto from the US authorities. CP is free to set up a voting trust for the takeover.

Having deemed the CP offer “superior”, KCS notified the board of CN it planned to terminate their merger agreement and tie the knot with CP instead – subject to CN’s right to negotiate amendments to its offer over the next five days.

CN said it was “evaluating its options” and “will make carefully considered decisions in the interests of all CN shareholders and stakeholders and in line with our strategic priorities”.

According to one report, its board is facing pressure from a major shareholder to abandon the merger and focus on improving its own operations instead.

Keith Creel, CEO of CP, said: “We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership. As we have said throughout, CP remains committed to everything this opportunity presents. This merger proposal provides KCS stockholders greater regulatory and value certainty. We are excited to move forward as we work toward making this perfect match a reality.”

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