KCS in talks on dueling takeover bids

By The Associated Press

OMAHA, Neb. (AP) — As deal talks begin, Canadian National railroad says it is receiving broad support for its $33.7 billion bid to buy Kansas City Southern.

Canadian National said Monday that more than 400 shippers and other stakeholders have submitted letters supporting its offer, including some who previously supported Canadian Pacific's $25 billion bid to buy Kansas City Southern. That's similar to the level of support Canadian Pacific says it has received for its offer.

On Saturday, Kansas City Southern said it would negotiate with CN about its unsolicited offer because it “could reasonably be expected” to be considered a superior proposal although KCS' board hasn't yet determined that it is. Both proposed deals are designed to capitalize on expanding trade between the United States, Canada and Mexico under the new trade pact signed last year

Canadian Pacific, which has said it believes competitive concerns would doom Canadian National's offer with regulators, said it believes the deal talks between CN and Kansas City Southern are just a formality at this stage. Kansas City Southern said it is still bound by its merger agreement with Canadian Pacific at this stage.

“We fully support the board of KCS in reviewing CN's offer,” Canadian Pacific CEO Keith Creel said. “We are confident through this process that they will recognize this unsolicited bid is fraught with challenges, uncertainties and regulatory risks that are not present in the seamless, pro-competitive and pro-service CP-KCS combination.”

Canadian Pacific has said combining Kansas City Southern and Canadian National would hurt competition because both those companies have rail lines that compete for business between the Midwest and the Gulf Coast. Canadian Pacific’s network connects to Kansas City Southern near its headquarters in Kansas City, but those two railroads don’t overlap elsewhere.

U.S. regulators haven't approved any major railroad mergers since the 1990s, and officials have said that generally any deal involving one of the six largest railroads must enhance competition and serve the public interest. The U.S. Surface Transportation Board has also said it would consider whether any deal would destabilize the industry and prompt additional mergers.