Kansas City Southern railroad is trying to keep its $33.6 billion merger with Canadian National on track by rejecting a competing $31 billion bid from rival Canadian Pacific earlier this week.
Kansas City Southern said Thursday that its board unanimously decided to continue backing Canadian National’s higher offer. KCS shareholders are scheduled to vote whether to accept CN’s offer on Aug. 19, but the U.S. railroad said it may now delay that vote if the U.S. Surface Transportation Board doesn’t issue its decision on a key part of Canadian National’s acquisition plan before Tuesday.
The STB said earlier this week that by Aug. 31, it will issue its decision on Canadian National’s proposal to use a voting trust that would acquire Kansas City Southern and hold the railroad during the STB’s lengthy review of the overall deal. Failure to get that key approval would likely derail the deal.
Canadian Pacific officials have said they don’t think CN’s deal can get approved. They argue that the acquisition would hurt competition across much of the central United States because those railroads operate parallel rail lines connecting the Gulf Coast to the Midwest. CP officials have also said that CN’s plan would add to rail congestion in the Chicago area, and it would likely inspire other railroads to attempt mergers.
Canadian National has said it believes it can address the competitive concerns through its operating plan and by selling 70 miles (113 kilometers) of track between New Orleans and Baton Rouge, Louisiana, where Kansas City Southern’s network directly overlaps with CN’s tracks. Canadian National said that after the merger it would also maintain its connections with other railroads to allow customers to ship goods using a combination of different railroads if they choose.
It’s not clear how the Surface Transportation Board will rule because its current merger rules haven’t been tested. The new rules were adopted after a series of service problems snarled shipments and the industry was left with six huge players in North America after several railroad mergers in the 1990s.
Regulators have said that any deal involving one of the nation’s six largest railroads needs to enhance competition and serve the public interest in order to get approved. The board has also said it would consider whether any deal would destabilize the industry and prompt additional mergers.