Kansas City Southern Board Determines Canadian National Railway Proposal Continues to be Superior to Canadian Pacific Railway Merger Agreement

Rhea-AI Summary

Kansas City Southern (KSU) has announced that its Board of Directors has determined that the acquisition proposal from Canadian National Railway Company (CNR) constitutes a "Company Superior Proposal" under KCS's existing merger agreement with Canadian Pacific Railway (CP). Consequently, KCS has terminated the CP merger agreement and entered into a new agreement with CN. Each KCS share will be exchanged for $200 in cash plus 1.129 shares of CN stock upon closing, which is subject to stockholder and regulatory approvals. KCS will pay a $700 million breakup fee to CP, reimbursed by CN under certain conditions.

Positive

• Acquisition by CN is deemed a superior proposal, potentially enhancing shareholder value.
• Shareholders to receive $200 in cash and 1.129 shares of CN stock per KCS share, indicating financial benefits.

Negative

• KCS incurred a $700 million breakup fee to CP, creating short-term financial strain.

Kansas City Southern (NYSE: KSU) (“KCS”) today announced that the Company’s Board of Directors, in consultation with its financial and legal advisors, has unanimously determined that the acquisition proposal KCS received from Canadian National Railway Company (TSX: CNR, NYSE: CNI) (“CN”) on May 13, 2021 continues to constitute a “Company Superior Proposal” under KCS’s pending merger agreement with Canadian Pacific Railway Limited (TSX: CP, NYSE: CP) (“CP”).

Following this determination, KCS terminated the CP merger agreement and entered into a merger agreement with CN. Under the terms of the CN merger agreement, upon closing, each share of KCS common stock will be exchanged for $200 in cash and 1.129 shares of CN common stock. Closing will be subject to customary conditions, including KCS stockholder approval and approval by the Surface Transportation Board of CN’s proposed voting trust. In connection with the termination of the CP merger agreement, KCS paid CP a breakup fee of $700 million, which will be reimbursed by CN. KCS will be obligated to refund this amount under certain limited circumstances, including if KCS terminates the CN merger agreement to accept a superior proposal.

KCS and CN are jointly issuing a separate press release with respect to the KCS-CN transaction.

BofA Securities and Morgan Stanley & Co. LLC are serving as financial advisors to Kansas City Southern. Wachtell, Lipton, Rosen & Katz, Baker & Miller PLLC, Davies Ward Phillips & Vineberg LLP, WilmerHale, and White & Case, S.C. are serving as legal counsel to Kansas City Southern.

About Kansas City Southern

Headquartered in Kansas City, Mo., Kansas City Southern (KCS) (NYSE: KSU) is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holding is The Kansas City Southern Railway Company, serving the central and south central U.S. Its international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS' North American rail holdings and strategic alliances with other North American rail partners are primary components of a unique railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada. More information about KCS can be found at www.kcsouthern.com

Forward Looking Statements

Certain statements included in this news release constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws, including statements based on management’s assessment and assumptions and publicly available information with respect to KCS, regarding the proposed transaction between CN and KCS, the expected benefits of the proposed transaction and future opportunities for the combined company. By their nature, forward-looking statements involve risks, uncertainties and assumptions. KCS cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. Forward-looking statements may be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “assumes,” “outlook,” “plans,” “targets,” or other similar words.

Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors which may cause actual results, performance or achievements of CN, or the combined company, to be materially different from the outlook or any future results, performance or achievements implied by such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements. Important risk factors that could affect the forward-looking statements in this news release include, but are not limited to: the outcome of the proposed transaction between CN and KCS; the parties’ ability to consummate the proposed transaction; the conditions to the completion of the proposed transaction; that the regulatory approvals required for the proposed transaction may not be obtained on the terms expected or on the anticipated schedule or at all; CN’s indebtedness, including the substantial indebtedness CN expects to incur and assume in connection with the proposed transaction and the need to generate sufficient cash flows to service and repay such debt; CN’s ability to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed transaction; the possibility that CN may be unable to achieve expected synergies and operating efficiencies within the expected time-frames or at all and to successfully integrate KCS’ operations with those of CN; that such integration may be more difficult, time-consuming or costly than expected; that operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers or suppliers) may be greater than expected following the proposed transaction or the public announcement of the proposed transaction; the retention of certain key employees of KCS may be difficult; the duration and effects of the COVID-19 pandemic, general economic and business conditions, particularly in the context of the COVID-19 pandemic; industry competition; inflation, currency and interest rate fluctuations; changes in fuel prices; legislative and/or regulatory developments; compliance with environmental laws and regulations; actions by regulators; the adverse impact of any termination or revocation by the Mexican government of KCS de México, S.A. de C.V.’s Concession; increases in maintenance and operating costs; security threats; reliance on technology and related cybersecurity risk; trade re

FAQ

What is the acquisition proposal from Canadian National Railway for Kansas City Southern (KSU)?

Canadian National Railway's acquisition proposal involves each KSU share being exchanged for $200 in cash and 1.129 shares of CN stock.

What led Kansas City Southern to terminate its merger with Canadian Pacific Railway?

KCS terminated the merger with CP after determining that the proposal from CN was a superior offer.

How much is KCS obligated to pay as a breakup fee to Canadian Pacific Railway?

KCS paid a breakup fee of $700 million to CP upon termination of their merger agreement.

What approvals are needed for the CN-KCS merger to close?

The merger is subject to stockholder approval and the Surface Transportation Board's approval of CN's proposed voting trust.

When did Kansas City Southern announce the acquisition by Canadian National Railway?

The acquisition proposal was announced on May 13, 2021.