Kansas City Southern (KCS) stockholders will now vote on the “definitive merger agreement” with CN on Sept. 3, 2021, KCS reported.
The meeting was originally set for Aug. 19, 2021, but was postponed pending the Surface Transportation Board’s (STB) review and ruling on CN and KCS’s joint voting trust application, which the Class I railroads filed last month. On Aug. 13, 2021, KCS announced that if the STB had not released a public decision by Aug. 17, 2021, at 6 p.m. CT, the meeting would be adjourned to give all stockholders and the KCS Board time to receive and consider the STB decision. That decision, according to STB, will be delivered no later than Aug. 31, 2021.
“All stockholders of record of KCS common stock and KCS 4% non-cumulative preferred stock as of the close of business on July 1, 2021 will be entitled to vote their shares at the special meeting,” KCS said.
The Class I railroad also stated: “KCS and CN are confident that the voting trust meets all the standards and the public interest test set forth by the STB and believe that it should be approved. KCS stockholders will receive the merger consideration immediately upon the closing of the voting trust, which is also subject to receipt of KCS stockholder approval and Mexican regulatory approvals.
“As previously announced on May 21, 2021, KCS and CN entered into a definitive merger agreement, unanimously approved by the Board of Directors of each company, pursuant to which CN agreed to acquire KCS in a stock and cash transaction valued at $325 per common share, based on CN’s May 13, 2021 offer, implying a total enterprise value of $33.6 billion, including the assumption of approximately $3.8 billion of KCS debt. Under the terms of the agreement with CN, KCS stockholders will receive $200 in cash and 1.129 shares of CN common stock for each KCS common share.
“The KCS Board of Directors recommends stockholders vote FOR the pending merger with CN.”
In another twist, on Aug. 10, 2021, rival merger partner Canadian Pacific (CP) submitted a US$300 per-share offer to KCS consisting of $90 in cash plus shares. However, the KCS Board turned it down on Aug. 13, 2021, saying that “following a careful and thorough review in consultation with outside financial and legal advisors, [it] has unanimously determined that the unsolicited proposal received from Canadian Pacific on Aug. 10 to acquire KCS in a cash and stock transaction does not constitute a ‘Company Superior Proposal’ and could not reasonably be expected to lead to a ‘Company Superior Proposal,’ as defined in KCS’s previously announced definitive merger agreement with CN.”
Railway Age Editor-in-Chief William C. Vantuono reported that a source who spoke “on background for no attribution” called CP’s extension of a second, higher offer to KCS a “strategic move” that “proved successful” by resulting in the KCS Board deciding to postpone its shareholders’ vote, adding that the KCS Board’s “ultimate recommendation to its shareholders will depend on the STB ruling on the CN voting trust.”
On Aug. 19, CP provided the following statement on the KCS Board’s postponement of the stockholders meeting:
“By rightly postponing Thursday’s [Aug. 19] meeting, the KCS Board of Directors appropriately will allow stockholders to have access to all the information needed before voting on the CN-KCS merger proposal, including the critical decision by the Surface Transportation Board … on the Canadian National … proposed voting trust. Delaying the stockholder vote also means KCS stockholders won’t become locked into a CN-KCS combination and then unable to consider other, better options like CP’s Aug. 10 proposal, which remains outstanding.
“The STB has said it will issue its voting trust decision by Aug. 31. CP has urged the STB not to approve CN’s proposed use of a voting trust because CP believes that the trust would be anti-competitive and not in the public interest.
“CP-KCS is the only true end-to-end Class I combination that serves the public interest ‘preserving and enhancing’ competition for customers and enabling a stronger North American rail network connecting Canada, the United States and Mexico. CP-KCS is a superior combination that has a path to approval and deal certainty for the KCS shareholders.
“CP also believes that once the STB rules on the CN voting trust proposal, the Aug. 10 CP offer ought to be deemed superior as the CP-KCS combination has regulatory certainty as a result of the STB’s approval for CP’s use of a voting trust.”