CP Rail appeals to K.C. Southern holders to reject CN deal

Canadian Pacific Railway Ltd. called on Kansas City Southern shareholders to vote against a $30 billion merger agreement with Canadian National Railway Co., citing regulatory risks in its larger rival’s proposal.

Investors in the U.S. carrier should reject the deal reached by management so that the proposed acquisition can be decided later, Canadian Pacific said in a regulatory filing Thursday. A shareholder vote is set for Aug. 19.

The terms of Canadian National’s deal effectively mean that “a ‘yes’ vote now would lock KCS stockholders in until February 2022, instead of their being free to consider other, better, options,” Canadian Pacific Chief Executive Officer Keith Creel said in a statement.

Kansas City Southern and Canadian National didn’t immediately respond to requests for comment.

The takeover battle will determine which Canadian company will become the first railroad to have tracks through Canada, the U.S. and Mexico. Kansas City Southern gets about half its revenue from Mexico, which is poised for an investment surge as companies seek to shorten supply lines that stretch to Asia.

The U.S. railroad accepted Canadian National’s offer on May 21, scrapping a $25 billion deal with Canadian Pacific after that carrier said it didn’t have the financial firepower to win a bidding war.

Canadian National is awaiting approval from U.S. regulators to use a voting trust to purchase Kansas City Southern, which the U.S. company demanded as a means to pay its shareholders even before a deal gets a final antitrust nod. The Surface Transportation Board has already cleared Canadian Pacific’s use of a trust. Because Canadian National is larger, it must meet a tougher standard of review.

“KCS stockholders should be aware that voting to approve the CN-KCS merger while there is this level of regulatory uncertainty comes with severe consequences that are not in the KCS stockholders’ best interests,” Canadian Pacific said.