Kansas City Southern to Combine With Canadian National Railway in Roughly $30 Billion Deal
22 May 2021 - 2:38AM
Dow Jones News
By Dave Sebastian
Kansas City Southern said it would combine with Canadian
National Railway Co. in a roughly $30 billion deal after deeming
the offer as superior to the agreement it had struck with Canadian
Pacific Railway Ltd.
The deal has an enterprise value of $33.6 billion, including the
assumption of about $3.8 billion in Kansas City Southern's debt,
the companies said Friday. The combination would create the first
freight-rail network linking the U.S., Mexico and Canada by
connecting ports in the three countries.
The Wall Street Journal on Thursday reported that Kansas City
Southern was expected to ditch the agreement with Canadian Pacific.
On Friday, Canadian Pacific said it remains ready to re-engage with
Kansas City Southern. Canadian Pacific had earlier decided to hold
firm on the terms of its agreed-upon deal with Kansas City
Southern.
Kansas City Southern shareholders will get $325 a share based on
Canadian National's May 13 offer, comprising $200 in cash and 1.129
shares of Canadian National stock for each Kansas City Southern
share, the companies said. The companies said Kansas City
Southern's preferred shareholders will get $37.50 in cash for each
preferred share. Kansas City shareholders are expected to own about
12.6% of the combined company, they added.
The companies said they are confident in their ability to obtain
regulatory approvals, including from the U.S. Surface
Transportation Board and the Federal Economic Competition
Commission and Federal Telecommunications Institute in Mexico.
Canadian Pacific said it would proceed with its application with
STB to seek the board's authority to "control KCS and its U.S. rail
carrier subsidiaries." The company has already received preliminary
regulatory approval for the deal.
Canadian Pacific had agreed in March to pay what was then worth
$275 a share -- 0.489 of its shares and $90 in cash. (The exchange
ratio was set before Canadian Pacific's recent five-for-one stock
split.) The offer was worth about $25 billion when it was
unveiled.
In its sweetened proposal, Canadian National agreed to add more
stock and cover the $700 million breakup fee Kansas City Southern
would owe Canadian Pacific for walking away from their existing
agreement. If an agreement with Canadian National ultimately fails
to get approval from regulators, the Canadian company would also
owe Kansas City Southern a $1 billion reverse breakup fee.
(END) Dow Jones Newswires
May 21, 2021 12:23 ET (16:23 GMT)
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