KCS Board Accepts CN Merger Bid

The board of directors of Kansas City Southern on Thursday accepted the $33.6 billion merger offer from Canadian National.

The development appears to mean that Canadian Pacific has lost out on its bid to buy KCS for $29 billion. KCS gave CP five days to respond with a counter offer.

Although CP said in a statement it would have a response to the KCS board, it also reiterated earlier comments by CEO Keith Creel that CP would not engage in a bidding war.

CP also repeated its earlier contention that a CN-KCS merger faces significant regulatory hurdles.

Throughout the battle to control KCS, CP also has said that if it loses the KCS merger battle, it will be forced to seek another merger partner because the CN-KCS combination will leave CP as the smallest Class 1 system.

The CN bid to buy KCS, the smallest North American Class 1 railroad system, was $325 per share, which includes $200 in cash and 1.129 shares of CN common stock for each share of KCS stock.

KCS shareholders would own 12.6 percent of the combined company and CN agreed to pay the $700 breakup fee that KCS owes CP.

The CN-KCS merger must be approved by the U.S. Surface Transportation Board under rules the agency adopted in 2001 pertaining to Class 1 mergers.

However, those rules have yet to be applied because there have been no Class 1 mergers in the past two decades.

CN officials expect to win approval of the KCS acquisition in the second half of 2022.

KCS is expected to retain its corporate identity. The U.S. headquarters CN-KCS will be based in Kansas City, Missouri.

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