CP Canadian Pacific Kansas City Limited

By Cara Lombardo 

Canadian Pacific Railway Ltd. said Thursday it won't increase its takeover offer for Kansas City Southern, betting recent setbacks for a higher offer from a rival make sweetening the bid unnecessary.

It is now up to Kansas City Southern to decide whether to go with a roughly $30 billion offer from Canadian National Railway Co. and abandon a $25 billion deal it already agreed to with Canadian Pacific. While Canadian Pacific has already received a key early nod from the Surface Transportation Board, the panel, which regulates railroads in the U.S., indicated this week that it needs more details before ruling on Canadian National's offer.

Canadian Pacific had until later Thursday to alter its bid or hold steady after Canadian National took the lead in the race to acquire Kansas City Southern last week, when the U.S. railroad declared the higher bid was likely to lead to a better deal.

That declaration came after Canadian National agreed last week to add more stock to its proposal and cover the $700 million breakup fee Kansas City Southern would owe Canadian Pacific for walking away from their existing merger agreement.

Either deal would involve a two-step process. First, a voting trust would acquire Kansas City Southern shares and, assuming necessary approvals are received, whichever companies would then merge. Both the use of a trust and the merger itself need approval from the STB, which requires major railroad combinations to be in the public interest and enhance competition.

While the STB already approved a voting trust as part of Canadian Pacific's deal, it said last week that it was denying Canadian National's request for now, without prejudice, since no formal merger agreement had yet been filed. But language in the decision also suggested the board would be more cautious in granting a trust to Canadian National.

Should Kansas City Southern ultimately spurn Canadian Pacific in favor of Canadian National, it is expected Canadian National would refile its request with the Surface Transportation Board.

In its announcement Thursday, Canadian Pacific pointed to comments the Justice Department filed with the STB saying the CN proposal raises competition concerns that should prohibit the company from using a trust. And on Tuesday, TCI Fund Management Ltd., which holds a roughly 3% Canadian National stake and more than 8% of Canadian Pacific, urged CN to drop its bid to avoid the risk of the trust not being approved. Canadian National's largest shareholder, Cascade Investments LLC, has said it supports the bid.

Canadian Pacific had agreed in March to pay $275 a share -- 0.489 of its shares and $90 in cash -- or about $25 billion. Canadian National's latest bid is worth $325 a share, with each share of Kansas City Southern receiving $200 in cash and 1.129 shares of Canadian National stock.

Write to Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

May 20, 2021 09:51 ET (13:51 GMT)

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