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May 18, 2021updated 24 Nov 2021 6:16am

STB rejects Canadian National’s voting trust plan for KCS acquisition

STB rejects Canadian National’s voting trust due to missing details in connection with the merger agreement.

The US Surface Transportation Board (STB) has rejected a plan proposed by Canadian National (CN) to establish a voting trust that would buy and own Kansas City Southern (KCS) while the deal is being reviewed by the regulator.

This March, CP had agreed to acquire KCS in a cash and stock deal of approximately $29bn, which included a $3.8bn assumption of outstanding KCS debt.

The STB dismissed the plan on the grounds of missing details in connection with the merger. It decided to apply the existing merger rules to its review of CN’s superior acquisition proposal for KCS.

In response to STB’s decision, the company stated that it will resubmit the plan along with the merger agreement, which was finalised with KCS on 13 May.

In a statement, CN said: “We note that the STB’s procedural decision to defer consideration of our voting trust was based solely upon the fact that a merger agreement for the combination between CN and KCS was not yet available to be filed with the board.”

KCS also stated that the company’s offer of $33.6bn was superior to the $25bn deal it had concurred with rival Canadian Pacific (CP) in the previous month.

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CN noted that its voting trust plan is almost identical to CP’s proposal, which was already approved by the STB.

In a statement, CP said: “With this new ruling by the STB, CP’s confidence in the superiority of its friendly agreement with KCS is redoubled. The fairness of CP’s outstanding offer to acquire KCS is compelling because CP+KCS is the only Class 1 merger that is viable.”

Until now, the company has not agreed to increase its bid for the acquisition of KCS. However, it still has time to officially respond to Canadian National’s offer.

The STB stated that it will assess the KCS-related deals cautiously for the interest of the public and to ensure healthy competition.

It further added that the process of reviewing can last for more than 18 months.

If the deal is finally rejected by the regulators, the voting trust will subsequently put KCS for sale to maintain its independence.

In addition, the STB stated that CN’s proposed acquisition of KCS will now be evaluated under a stringent set of rules passed in 2001.

Earlier, the board said that it would review the proposed CP-KCS merger under the older merger rules because of the little intersection between the two railroads.

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