In a statement, KCS said that its board, following consultation with legal and financial advisors, determined that CP’s $27.2bn bid was superior to CN’s $29.6bn offer.
KCS has already notified CN about its intention to terminate its merger agreement with CN and enter a new definitive deal with CP.
However, CN will now have five business days to renegotiate and submit an improved offer to acquire KCS.
The deal values KCS at $300 per share, where each share of KCS common stock will be exchanged for 2.884 CP common shares and $90 in cash.
Additionally, KCS preferred shareholders would receive $37.50 in cash for each share of KCS preferred stock held.
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The transaction is subject to acceptance by the shareholders of CP and KCS, regulatory approval, and other customary closing conditions.
CP president and CEO Keith Creel said: “We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership.
“As we have said throughout this process, CP remains committed to everything this opportunity presents. This merger proposal provides KCS stockholders greater regulatory and value certainty. We are excited to move forward as we work toward making this perfect match a reality.”
According to a Reuters report, CN will receive a break-up fee of $700m from KCS if it loses the merger battle to CP. It will also receive another $700m that it paid KCS to pass on to CP to terminate the March deal.