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    CNR   CA1363751027

CANADIAN NATIONAL RAILWAY COMPANY

(CNR)
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Canadian National Expected to Sweeten Kansas City Southern Bid -- 2nd Update

05/13/2021 | 04:24pm EDT

By Dana Cimilluca and Cara Lombardo

Canadian National Railway Co. is expected to sweeten its takeover bid for Kansas City Southern, according to people familiar with the matter, as it seeks to outflank a rival and clinch a $30 billion deal for the railway operator.

The new proposal could include an agreement to cover the $700 million breakup fee Kansas City Southern would owe Canadian Pacific Railway Ltd. should it walk away from their existing merger agreement in favor of a deal with Canadian National, the people said. It couldn't be learned what else a new proposal might contain, including any adjustment to the consideration.

The move could pave the way for Kansas City Southern to switch its allegiance to Canadian National, something it has indicated it might do. Kansas City Southern's board is expected to convene soon and could make a decision on the matter then, some of the people said.

Kansas City Southern had asked Canadian National, which put in a bid seeking to wrest the railroad operator from Canadian Pacific last month, to make adjustments to its proposal, the people said.

There is no guarantee that Canadian National will submit a revised bid or that Kansas City Southern would deem it superior. Should Canadian National win Kansas City Southern's endorsement, Canadian Pacific would have a five-day period to sweeten its offer or walk away with the breakup fee.

Canadian Pacific said that Canadian National's potential revised bid "only highlights CN's recognition of the significant regulatory risk of its anticompetitive bid."

The agreement with Canadian Pacific includes a $1 billion reverse breakup fee, which Canadian Pacific would owe Kansas City Southern if their deal is terminated for reasons including delays tied to regulatory reviews. Canadian National had proposed the same terms and Kansas City Southern has asked for more, but Canadian National is leaning toward holding firm on that aspect of its bid, some of the people said.

Canadian National had offered $325 for each Kansas City Southern share, including $200 in cash and 1.059 Canadian National shares. Kansas City Southern said late last month that it was entering into discussions with Canadian National after determining its proposal could "reasonably be expected" to lead to a better deal.

Canadian Pacific had agreed in March to pay $275 a share -- 0.489 of its shares and $90 in cash -- or about $25 billion. Based on the stock prices midday Thursday, Canadian National's bid was worth around $319 a share and Canadian Pacific's, about $285. Kansas City Southern shares were trading around $309, indicating investors believe Canadian Pacific's current bid won't carry the day.

Either deal would involve a two-step process. First, a voting trust would acquire Kansas City Southern shares and, assuming necessary approvals are received, the companies would then merge. Both the use of a trust and the merger itself need approval from the U.S. Surface Transportation Board, which requires major railroad combinations to be in the public interest and enhance competition.

The STB approved a voting trust proposed as part of the Canadian Pacific deal last week, as was expected. While Canadian National had asked STB to wait and rule on both voting trust proposals at the same time, the STB decision didn't mention Canadian National's request, which it is expected to rule on later. Should Kansas City Southern switch its allegiance, it would signal a belief that the STB would ultimately bless a trust for Canadian National too.

The bids by the Canadian railroads are the first major transactions to be brought before the STB in more than two decades. Whichever bid prevails, the expectation is that the merger itself wouldn't be ruled on until well into next year.

Kansas City Southern, the smallest of the major freight railroads in the U.S., plays a big role in U.S.-Mexico trade, with a network stretching across both countries, which helps explain its desirability as an acquisition target.

Ted Mann contributed to this article.

Write to Dana Cimilluca at dana.cimilluca@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

05-13-21 1623ET

Stocks mentioned in the article
ChangeLast1st jan.
CANADIAN NATIONAL RAILWAY COMPANY -0.46% 133.32 Delayed Quote.-4.29%
CANADIAN PACIFIC RAILWAY LIMITED -0.58% 90.29 Delayed Quote.3.56%
DJ INDUSTRIAL -0.36% 34930.93 Delayed Quote.14.83%
KANSAS CITY SOUTHERN -0.16% 261.05 Delayed Quote.28.09%
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Financials
Sales 2021 14 809 M 11 815 M 11 815 M
Net income 2021 4 235 M 3 378 M 3 378 M
Net Debt 2021 12 350 M 9 853 M 9 853 M
P/E ratio 2021 22,3x
Yield 2021 1,83%
Capitalization 94 377 M 75 075 M 75 294 M
EV / Sales 2021 7,21x
EV / Sales 2022 6,62x
Nbr of Employees 24 376
Free-Float 99,4%
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Number of Analysts 25
Last Close Price 133,32 CAD
Average target price 144,62 CAD
Spread / Average Target 8,47%
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Managers and Directors
Jean-Jacques Ruest President, Chief Executive Officer & Director
Ghislain Houle Chief Financial Officer & Executive Vice President
Robert L. Pace Chairman
Dominique Malenfant Chief Information & Technology Officer, EVP
Nayan Bharadwa Vice President-Automated Rail & Technology
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