CN-KCS Merger to be Reviewed Under New Rules

The proposed merger of Canadian National and Kansas City Southern will be reviewed under stricter merger rules, the U.S. Surface Transportation Board ruled on Tuesday.

The merger will be the first to be considered by federal regulators under rules that were adopted in 2001.

In a statement CN said it welcomed decision. The STB standards “requires demonstrating that the combination would enhance competition,” CN said.

In a related development, CN also filed with the STB its merger agreement with KCS and said it will be asking regulators to adopt an expedited schedule for reviewing its request to put KCS into a voting trust.

The STB on Monday had denied the latter request on technical grounds, saying the CN-KCS merger documents were incomplete.

CN hopes to send to the STB by Friday a “renewed motion for approval” and wants the STB to accept comments on its voting trust proposal through May 26. CN will then reply to those comments through May 28.

Regulators have raised concerns about the level of debt CN will incur to finance its $33.6 billion acquisition of KCS.

CN said its formal request for a voting trust will address that concern.

“CN will show that the significant public benefits of the transaction could only be achieved through use of a voting trust in these circumstances, and that these benefits substantially outweigh any potential public interest harm. As part of that showing, CN will demonstrate that its strong balance sheet, cash flows and ratings profile provide certainty that CN has the financial integrity to satisfy the STB’s public interest analysis,” CN said on Tuesday.

KCS stockholders are expected to vote on the CN bid to buy their company in July. CN therefore wants to have the voting trust in place by early June.

CN also needs approval for regulators in Mexico before it can establish the voting trust later tjhis year.

Once KCS is placed into a voting trust, its shareholders can begin receiving cash and CN stock as offered by the merger agreement.

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