Calgary Alberta - Canadian Pacific Railway Limited (CP) today issued the following statement regarding Canadian National's (CN) unsolicited offer to acquire Kansas City Southern (KCS):
 
CN's proposal is illusory and inferior because it creates adverse competitive impacts and raises other serious public interest concerns.
 
CN's proposal increases regulatory and anti-trust risk for KCS shareholders and decreases benefits for customers, employees, and other stakeholders.
 
CN's Proposal is Massively Complex and Likely to Fail
 
The CN proposal would create the third largest Class 1 railroad and destabilize the competitive balance in the North American rail industry.
 
The only combination involving KCS that is clearly in the public interest is the one that CP has proposed, which has already garnered support from over 400 shippers and other stakeholders.
 
While remaining the smallest of the six U.S. Class 1 railroads by revenue, a combination between CP and KCS creates stronger single-line competition against existing Class 1 routes.
 
CN Proposal Would Reduce Competition and Negatively Impact Shippers
 
Between the upper Midwest and Gulf Coast, in corridors like Twin Cities to New Orleans, the CN proposal would reduce the number of independent routing options from four to three.
 
CN's proposal would eliminate head-to-head competition for large numbers of shippers at numerous locations across KCS's system.
 
The STB has previously recognized that CN and KCS "compete aggressively for traffic".
 
CN's suggestion that competition is limited to a handful of shippers between Baton Rouge and New Orleans is false.
 
CN and KCS's parallel lines between those points serve large numbers of shippers, and their proximity has prompted build-in/build-out competition in the past.
 
In addition, both CN and KCS serve large numbers of shippers in western Iowa and eastern Nebraska, at Jackson, Mississippi, East St. Louis, Illinois, Springfield, Illinois, and both reach the port of Mobile, Alabama.
 
Canadian National Has History of Over Promising and Under Delivering
 
The CN management team has significantly under performed over a decade, and has a track record of under delivering against its own projections.
 
Specifically, CN has been the worst performing Class 1 railroad over the last 10 years by total shareholder return.
 
This calls into question the financial projections they have made regarding a CN/KCS combination and puts significant value at risk for KCS shareholders.
 
Importantly, CN has consistently delivered inferior safety and accident performance.
 
In contrast, CP has been North America's safest Class 1 railroad for 15 consecutive years based on Federal Railroad Administration-reportable train accident frequency.
 
CP and its management team led by CEO Keith Creel have consistently outperformed the industry with a track record of exceeding expectations.
 
In addition, Keith Creel, a native of Alabama, brings deep knowledge of the US rail networks and extensive operating background, essential to making a combination with KCS successful.
 
A CP/KCS Combination Ensures Greater Competition and Offers More Options for Customers
 
A combination of CP and KCS enhances competition, creating new and stronger competitive options against existing UP, BNSF, and CN single-line routes, as well as trucks.
 
One prime example is it would benefit the U.S. Upper Midwest grain-growing regions of the Dakotas, Minnesota, and Iowa, where CP/KCS will inject new competition for shippers now beholden to UP and BNSF to reach the Gulf and other end markets.
 
The CN proposal would not bring these benefits.
 
The CP/KCS combined network's new single-line offerings would deliver dramatically expanded market reach for customers served by CP and KCS, provide new competitive transportation service options, and support North American economic growth.
 
Importantly, no customer will experience a reduction in independent railroad choices as a result of the transaction.
 
The transaction is also expected to create jobs across the combined network, and efficiency and service improvements are expected to achieve meaningful environmental benefits.
 
In short, over 400 customers and stakeholders are supporting the CP/KCS combination because it delivers enhanced competition, more competitive options, and superior long-term value for shareholders and stakeholders.
 
Background on the CP/KCS Definitive Agreement
 
On 21 Mar 2021 CP and KCS announced a definitive agreement under which common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held, following the closing into a voting trust.
 
Preferred shareholders will receive $37.50 in cash for each KCS preferred share held.
 
The STB review is expected to be completed by the middle of 2022.
 
Upon obtaining control approval, the two companies will be integrated, unlocking the benefits of the combination.
 
CP's Board of Directors continues to recommend the transaction with KCS to its stockholders.
 
CP and KCS Website for More Information for All Stakeholders
 
Additional information on the transaction and the benefits it is expected to bring to the full range of stakeholders is available online at futureForFreight.com.
 
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