Kansas City Southern board spurns CP bid, awaits CN ruling

Kansas City Southern’s board rejected this week’s bid from Canadian Pacific Railway Ltd. and said it plans to delay a shareholder vote to approve a $30 billion acquisition by Canadian National Railway Co. if the U.S. rail regulator hasn’t made a key decision on the deal by day’s end on Aug. 17.

The decision to wait for the U.S. Surface Transportation Board to make a ruling comes after Canadian Pacific made a second, higher bid for Kansas City Southern on Aug. 10. That bid of $27 billion is still below Canadian National’s offer, and Kansas City Southern urged its shareholders in a statement Thursday to approve the CN deal at an Aug. 19 shareholders’ meeting.

The STB, which has sole authority for approving U.S. rail mergers, has said it plans to rule by Aug. 31 on Canadian National’s petition for a voting trust, a financial mechanism in which Kansas City Southern shareholders would be paid even while the merger approval is pending.

If the STB’s ruling doesn’t come before 7 p.m. New York time on Aug. 17, Kansas City Southern said it will move back the date for the vote “to give all shareholders and the Board time to receive and consider the STB decision.”

Canadian Pacific has said its offer provides a sure path to regulatory approval and that’s why its lower bid should be accepted. The STB has already approved Canadian Pacific’s voting trust and the regulator said it will judge the Canadian National deal by a higher standard than Canadian Pacific’s merger proposal.

Still, Kansas City Southern said in the statement that Canadian Pacific’s new unsolicited bid doesn’t constitute a “company superior proposal,” and reaffirmed its recommendation for shareholders to support “the pro-competitive, end-to-end merger with CN.”

The two Canadian railways’ U.S. shares were unchanged in after-hours trading. Kansas City Southern shares were little changed.