With commitment to divest the small overlapping
portion of lines with KCS, CN-KCS combination is now a fully
end-to-end merger
Filing details why combination is
pro-competitive and addresses each element of voting trust
approval
CN (TSX: CNR) (NYSE: CNI) and Kansas City Southern (NYSE: KSU)
(“KCS”) today announced that they have taken the next step on their
path to combine to create the premier railway for the 21st
century.
CN and KCS today jointly filed with the Surface Transportation
Board (“STB”) a renewed motion for approval of its voting trust
that outlines the case for approval of the voting trust to advance
the CN-KCS merger that will enhance competition, spur economic
growth and realize the benefits of a fully end-to-end
transportation network across the continent. The filing highlights
that the voting trust protects against premature control of KCS and
protects KCS’ financial health, that CN remains financially sound,
the substantial benefits to be gained from the transaction by
customers and the nearly 1,100 stakeholders who have already
supported the transaction.
As part of the application, CN is committing to divesting KCS’
70-mile line between New Orleans and Baton Rouge, which is less
than 0.7 percent of the approximately 27,000 route-miles the two
companies operate. This commitment eliminates the sole area of
overlap between the CN and KCS networks, thereby making the
combination an end-to-end transaction. This commitment, plus CN’s
multiple other pro-competitive commitments, including keeping
existing gateways open on commercially reasonable terms, addresses
any competitive concerns.
“We believe our early commitment to eliminating the minimal rail
overlap and to laying out the case for a CN-KCS combination should
allow the STB to approve our voting trust. A trust is an essential
step so KCS shareholders can receive the full value of their shares
while the STB considers our case for a combined, end-to-end rail
network and the significant public benefits of connecting the
continent. This combination will promote growth and compete with
the trucking industry for long-haul movements. It offers more
choice for rail customers, port operators, employees, stakeholders
and communities.”
- JJ Ruest, president and chief executive
officer of CN
“Combining KCS with CN is compelling for our customers,
employees, shareholders and the local communities in which we
operate. We urge the STB to fully consider the benefits of this
combination, and to respect KCS’ judgment about its preferred
merger partner, so that we can realize the tremendous public
interest advantages of the CN-KCS partnership on behalf of our
stakeholders, many of whom have expressed overwhelming
support.”
- Patrick J. Ottensmeyer, president and chief
executive officer of KCS
The Public Interest Benefits of a Combined
CN-KCS Network
New single-line routes and commitment to keep gateways open
for customers: A combined CN-KCS will reduce transit times and
provide more reliable and timely service, with shorter equipment
cycle times, making rail more competitive with truck and barge
routes and single-line services offered by other railroads. It will
also offer more cost-effective access to Southern markets in the
United States and Mexico, accelerating USMCA’s economic
benefits.
Specific supply chain benefits: The joint filing includes
detailed maps illustrating benefits for six major market segments:
(1) grain and grain byproducts; (2) intermodal; (3) importers,
exporters and ocean carriers who rely on ports; (4) automobiles and
automotive parts; (5) lumber and panel customers; and (6) plastic
resins, liquefied petroleum gases and refined petroleum
products.
Significant environmental benefits: Moving freight by
rail instead of truck lowers greenhouse gas (GHG) emissions by up
to 75 percent, on average. A single freight train can remove more
than 300 trucks from the road, leading to a significant reduction
in GHG emissions. For example, a daily CN-KCS double stack
intermodal train from San Luis Potosi to Detroit would result in
approximately 260,000 tons of CO2e emissions avoided per year.
Support across broad stakeholder network: CN has so far
received well over 1,100 letters detailing the competitive benefits
of the transaction including better service, more shipping options
and streamlined routing from shippers and customers as well as from
local governments, trade associations and business groups. Support
from ports and logistics providers demonstrates the significant
multi-modal benefits.
CN Application Satisfies Every Aspect of
Voting Trust Approval Framework
No unlawful control. Under CN’s proposed voting trust,
KCS would maintain complete independence. KCS will continue to be
managed by its existing management and board of directors, with a
trustee who is a former chief executive of KCS. KCS will remain
intact and preserve its ability to pursue its independent business
objectives. CN will have no influence over the day-to-day
management or operation of KCS.
Public interest benefits. Approval of the voting trust
will provide the STB the opportunity to review the substantial
public interest benefits of the CN-KCS combination while ensuring
KCS shareholders receive the full value of their shares. The CN-KCS
combination will provide a safer, faster, cleaner and stronger rail
option for customers, port authorities and communities. As
reflected by over 1,100 letters supporting the combination, it will
result not only in better service, more shipping options and
streamlined routing, but also in substantial environmental
benefits.
CN will remain financially strong. The Verified Statement
of CN’s Chief Financial Officer, Ghislain Houle, included with the
STB filing clearly demonstrates that the proposed transaction will
not impair CN’s strong financial standing, and sets forth CN’s plan
for rapidly paying down the debt it has secured to fund a portion
of the KCS purchase. CN has a strong record of investing in its
network to provide safe service and is dedicated to applying that
same approach to the combined CN-KCS network. CN made its highest
capital investments in 2018-2020 on record, which were focused on
adding capacity to accommodate growth and resiliency, deploying
technology to improve safety and productivity, and investing in
railcars and locomotives to serve our customers.
No risk to competition. While the STB will have ample
opportunity to review the competitive dynamics of the CN-KCS
combination, CN’s commitment to address the approximately 70-mile
overlap with KCS in Louisiana indicates that the CN-KCS combination
is a vertical, end-to-end merger. An analysis by Bill Rennicke, a
transportation executive and a consultant to railroads and motor
carriers for more than 40 years, included with the filing addresses
specific concerns about competition in Mississippi, finding that CN
and KCS’ North/South lines in Mississippi are generally many miles
apart and do not serve a single customer in common in this
area.
Preserves KCS’ choice of superior partner. Approving CN’s
proposed voting trust would ensure the realization of the public
interest benefits of a CN-KCS partnership and allow KCS to continue
to keep CN’s superior proposal.
The filing made with the STB, as well as additional information
about CN’s pro-competitive combination with KCS, is available at
www.ConnectedContinent.com.
About CN
CN is a world-class transportation leader and trade-enabler.
Essential to the economy, to the customers, and to the communities
it serves, CN safely transports more than 300 million tons of
natural resources, manufactured products, and finished goods
throughout North America every year. As the only railroad
connecting Canada’s Eastern and Western coasts with the U.S. South
through a 19,500-mile rail network, CN and its affiliates have been
contributing to community prosperity and sustainable trade since
1919. CN is committed to programs supporting social responsibility
and environmental stewardship.
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. CN 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 restrictions or
other changes to international trade arrangements; transportation
of hazardous materials; various events which could disrupt
operations, including illegal blockades of rail networks, and
natural events such as severe weather, droughts, fires, floods and
earthquakes; climate change; labor negotiations and disruptions;
environmental claims; uncertainties of investigations, proceedings
or other types of claims and litigation; risks and liabilities
arising from derailments; timing and completion of capital
programs; and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United
States. Reference should also be made to Management’s Discussion
and Analysis in CN’s annual and interim reports, Annual Information
Form and Form 40-F, filed with Canadian and U.S. securities
regulators and available on CN’s website, for a description of
major risk factors relating to CN. Additional risks that may affect
KCS’ results of operations appear in Part I, Item 1A “Risks Related
to KCS’s Operations and Business” of KCS’ Annual Report on Form
10-K for the year ended December 31, 2020, and in KCS’ other
filings with the U.S. Securities and Exchange Commission
(“SEC”).
Forward-looking statements reflect information as of the date on
which they are made. CN assumes no obligation to update or revise
forward-looking statements to reflect future events, changes in
circumstances, or changes in beliefs, unless required by applicable
securities laws. In the event CN does update any forward-looking
statement, no inference should be made that CN will make additional
updates with respect to that statement, related matters, or any
other forward-looking statement.
Non-GAAP Measures
CN reports its financial results in accordance with United
States generally accepted accounting principles (GAAP). CN also
uses non-GAAP measures in this news release that do not have any
standardized meaning prescribed by GAAP. This news release also
includes certain forward looking non-GAAP measures or discussions
of such measures (EPS, Adjusted Diluted EPS, EBITDA and a leverage
ratio being adjusted debt to adjusted EBITDA). It is not
practicable to reconcile, without unreasonable efforts, these
forward looking measures to the most comparable GAAP measures
(diluted EPS, net income and long term debt to net income ratio,
respectively), due to unknown variables and uncertainty related to
future results. Please see note on Forward Looking Statements above
for further discussion.
No Offer or Solicitation
This news release does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
Additional Information and Where to Find It
In connection with the proposed transaction, CN will file with
the SEC a registration statement on Form F-4 to register the shares
to be issued in connection with the proposed transaction. The
registration statement will include a preliminary proxy statement
of KCS which, when finalized, will be sent to the stockholders of
KCS seeking their approval of the merger-related proposals. This
news release is not a substitute for the proxy statement or
registration statement or other document CN and/or KCS may file
with the SEC or applicable securities regulators in Canada in
connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY
STATEMENT(S), REGISTRATION STATEMENT(S), TENDER OFFER STATEMENT,
PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC OR
APPLICABLE SECURITIES REGULATORS IN CANADA CAREFULLY IN THEIR
ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT CN, KCS AND THE PROPOSED
TRANSACTIONS. Any definitive proxy statement(s), registration
statement or prospectus(es) and other documents filed by CN and KCS
(if and when available) will be mailed to stockholders of CN and/or
KCS, as applicable. Investors and security holders will be able to
obtain copies of these documents (if and when available) and other
documents filed with the SEC and applicable securities regulators
in Canada by CN free of charge through at www.sec.gov and
www.sedar.com. Copies of the documents filed by CN (if and when
available) will also be made available free of charge by accessing
CN’s website at www.CN.ca. Copies of the documents filed by KCS (if
and when available) will also be made available free of charge at
www.investors.kcsouthern.com, upon written request delivered to KCS
at 427 West 12th Street, Kansas City, Missouri 64105, Attention:
Corporate Secretary, or by calling KCS’s Corporate Secretary’s
Office by telephone at 1-888-800-3690 or by email at
corpsec@kcsouthern.com.
Participants
This news release is neither a solicitation of a proxy nor a
substitute for any proxy statement or other filings that may be
made with the SEC and applicable securities regulators in Canada.
Nonetheless, CN, KCS, and certain of their directors and executive
officers and other members of management and employees may be
deemed to be participants in the solicitation of proxies in respect
of the proposed transactions. Information about CN’s executive
officers and directors is available in its 2021 Management
Information Circular, dated March 9, 2021, as well as its 2020
Annual Report on Form 40-F filed with the SEC on February 1, 2021,
in each case available on its website at www.CN.ca/investors/ and
at www.sec.gov and www.sedar.com. Information about KCS’ directors
and executive officers may be found on its website at
www.kcsouthern.com and in its 2020 Annual Report on Form 10-K filed
with the SEC on January 29, 2021, available at
www.investors.kcsouthern.com and www.sec.gov. Additional
information regarding the interests of such potential participants
will be included in one or more registration statements, proxy
statements, tender offer statements or other documents filed with
the SEC and applicable securities regulators in Canada if and when
they become available. These documents (if and when available) may
be obtained free of charge from the SEC’s website at www.sec.gov
and from www.sedar.com, as applicable.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210526005330/en/
Media: CN Canada
Mathieu Gaudreault CN Media Relations & Public Affairs (514)
249-4735 Mathieu.Gaudreault@cn.ca
Longview Communications & Public Affairs Martin Cej (403)
512-5730 mcej@longviewcomms.ca
United States Brunswick Group Jonathan Doorley / Rebecca
Kral (917) 459-0419 / (917) 818-9002 jdoorley@brunswickgroup.com
rkral@brunswickgroup.com
Media: KCS C. Doniele
Carlson KCS Corporate Communications & Community Affairs (816)
983-1372 dcarlson@kcsouthern.com
Joele Frank, Wilkinson Brimmer Katcher Tim Lynch / Ed Trissel
(212) 355-4449
Investment Community: CN
Paul Butcher Vice-President Investor Relations (514) 399-0052
investor.relations@cn.ca
Investment Community: KCS
Ashley Thorne Vice President Investor Relations (816) 983-1530
athorne@kcsouthern.com
MacKenzie Partners, Inc. Dan Burch / Laurie Connell (212)
929-5748 / (212) 378-7071
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