Rail Shippers Pick Sides as CP, CN Bid For Kansas City Southern

North America's freight rail customers, from grain shippers to logistics companies, are choosing sides as Canadian Pacific Railway Ltd and Canadian National Railway fight to buy Kansas City Southern, according to a report by Reuters.

A takeout of KCS (KSU.N), would be the first major North American railroad combination in more than 20 years and create the first network to include the United States, Canada and Mexico.

CN (CNR.TO) , Canada's biggest railroad, made an unsolicited $30 billion bid for KCS on April 20, topping CP's (CP.TO) agreed $25 billion bid, but CP said last week it was not considering raising its offer.

CN said on Monday (April 27) it was filing 409 letters of support from shippers and suppliers with the regulator, U.S. Surface Transportation Board (STB), pulling roughly even with CP's stated 416 letters of support.

CP supporters include shipping, container company Hapag-Lloyd (HLAG.DE), agriculture company Viterra Inc (VILC.UL), an association representing Mexican auto makers, and oil refiner Valero Energy Corp (VLO.N).

If CP buys KCS, the bulked-up company will be able to better compete in North Dakota with dominant railway BNSF Railway Co (BNISF.UL), said Kevin Karel, general manager at The Arthur Companies, which ships corn and other crops by rail.

CP's line crosses the agricultural state of North Dakota while CN's does not.

CN maintains that its combination with KCS would create a network that is shorter and faster than rail or truck competitors.

Its supporters include pork producer Maple Leaf Foods (MFI.TO) and steel manufacturer ArcelorMittal (MT.LU).

CP has no overlapping rail networks with KCS, unlike CN which runs parallel for about 100 kilometres (62 miles) in Louisiana, making it easier for CP's deal to clear regulatory hurdles.

CP on April 24 welcomed the U.S. regulator upholding a waiver that exempts KCS from the same scrutiny larger railroads face during proposed mergers.

The STB had granted KCS, the smallest of the Class 1 railways, an exemption from new merger rules in 2001 because a combination involving KCS did not raise the same concerns that any transaction among bigger railways might create.

U.S. agribusiness Cargill Inc (CARG.UL), and industry groups for chemical producers, corn refiners, and a trade group that promotes U.S. wheat exports had opposed use of the waiver, saying that a takeover of KCS is big enough to warrant full scrutiny.

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