Canadian National, Kansas City Southern Announce Merger Agreement

MONTREAL and KANSAS CITY, Mo. — Canadian National and Kansas City Southern have entered into a definitive merger* agreement, according to a news release from CN.

Kansas City Southern announced on Friday that the company’s Board of Directors, in consultation with its financial and legal advisers, had unanimously determined that the acquisition proposal KCS received from CN on May 13, continues to constitute a “Company Superior Proposal” under KCS’s pending merger agreement with Canadian Pacific Railway Ltd.

Following this determination, KCS terminated the CP merger agreement and entered into a merger agreement with CN.

The combination would create first freight-rail network linking the U.S., Mexico, and Canada by connecting ports in the three countries.

Under the terms of the agreement, which was unanimously approved by the Board of Directors of each company, KCS shareholders will receive $325* per common share based on CN’s May 13, offer, which implies a total enterprise value of $33.6 billion, including the assumption of approximately $3.8 billion of KCS debt.

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% when compared to KCS’ unaffected closing stock price on March 19, 2021. KCS’ preferred shareholders will receive $37.50 in cash for each preferred share.

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“We are thrilled that KCS has agreed to combine with CN to create the premier railway for the 21st century, " said JJ Ruest, president and chief executive officer of CN.

"I would like to thank the numerous stakeholders of both companies who have demonstrated overwhelming support for this compelling combination, and we look forward to delivering the many benefits of this pro-competitive transaction to them.

"I am confident that together with KCS’ experienced and talented team, we will meaningfully connect the continent – enhancing competition, offering more choice for customers, and driving environmental stewardship and shareholder value.”

“As North America’s most customer-focused transportation provider, we are excited about this combination with CN, which will provide customers access to new single-line transportation services at the best value for their transportation dollar, and increase competition among the Class 1 railroads," said Patrick J. Ottensmeyer, president and chief executive officer of KCS.

" Our companies’ cultures are strongly aligned, and we share a commitment to environmental stewardship, safe operations, reliable service and outstanding performance.

"As a larger continental enterprise with complementary routes and an enhanced platform for revenue growth, capital investment, and job creation, we will be positioned to deliver on the transaction’s powerful synergies which will create new growth opportunities for our customers, employees, labor partners, communities and shareholders.”

Said Robert Pace, chair of the board of CN: “KCS is the ideal partner for CN to connect the continent, helping to drive North American trade and economic prosperity.

"We are confident in our ability to gain the necessary regulatory approvals and complete the combination with KCS, and we look forward to combining with KCS to create new opportunities, more choice and a stronger company.”

The deal would involve a two-step process. First, a voting trust would acquire Kansas City Southern shares and, assuming necessary approvals are obtained, the companies would then combine.

Both the use of a trust and the combination itself need approval from the Surface Transportation Board, which requires major railroad combinations to be in the public interest and enhance competition.

* The combination is expected to be accretive to CN’s Adjusted Diluted EPS, excluding incremental transaction-related amortization, in the first full year following CN’s acquisition of control of KCS, and is expected to generate double-digit accretion upon the full realization of synergies thereafter. ** All figures in U.S. dollars, except where noted. All conversions between Canadian dollars and U.S. dollars are based on a 0.827 foreign exchange rate as of May 12, 2021. Where applicable, figures are based on the CN closing share price on the NYSE of $110.76 as of May 12, 2021.

To read the full CN report, click here.

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