The Kansas City Southern Board of Directors has determined CN’s proposal to be a “Company Superior Proposal” and plans to terminate its announced March 21 merger agreement with Canadian Pacific Railway.
“CN looks forward to promptly entering into a definitive merger agreement with KCS to create the premier railway for the 21st century,” the company said in a news release.
CN’s proposal offers KCS shareholders $325 per common share based on the May 12 closing price of CN shares, inlying a total enterprise value of $33.6 billion. It also assumes approximately $3.8 billion of KCS debt.
Under the terms of CN’s revised proposal, KCS shareholders will receive $200 in cash and 1.129 shares of CN common stock for each KCS common share, with KCS shareholders expected to own 12.6% of the combined company. This represents an implied premium of 45 percent compared to the unaffected closing stock price of KCS on March 19.
KCS preferred shareholders will continue to receive $37.50 in cash for each preferred share. In addition, a wholly-owned subsidiary of CN plans to reimburse $700 million to KCS for their payment of the termination fee to CP under the merger agreement with CP.
“We are delighted that KCS has deemed CN’s binding proposal superior, recognizing the many compelling benefits of our combination and expressing confidence in CN’s ability to obtain the necessary approvals and successfully close the transaction,” JJ Ruest, president and chief executive officer of CN, said in a news release. “Our proposal offers a clear path to completion and is structured in a way that gives KCS shareholders both greater immediate value and the opportunity to participate in the future upside of the combined company.
“Together, CN and KCS will seamlessly connect ports and rails in the United States, Mexico and Canada by providing superior service, enhanced competition and new market access to move goods across North America safely and efficiently,” Ruest added. “We are encouraged by the widespread support we have received for the transaction thus far and will continue to work closely with KCS and all relevant stakeholders to fully realize the benefits and opportunities available through a combined CN-KCS.”