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    CNR   CA1363751027

CANADIAN NATIONAL RAILWAY COMPANY

(CNR)
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Canadian National Expected to Sweeten Kansas City Southern Bid -- 3rd Update

05/13/2021 | 05:42pm EDT

By Dana Cimilluca and Cara Lombardo

Canadian National Railway Co. took the lead in the race to acquire Kansas City Southern, which declared the railroad operator's roughly $30 billion takeover bid superior to a rival proposal.

The declaration came after Canadian National agreed to add more stock to its proposal and cover the $700 million breakup fee Kansas City Southern would owe Canadian Pacific Railway Ltd. for walking away from their existing merger agreement, according to statements from the companies late Thursday.

The Wall Street Journal had earlier reported that Canadian National was expected to sweeten its offer and could win over Kansas City Southern soon.

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, people familiar with the matter had said.

Canadian Pacific now has a period of at least five days to sweeten its offer or walk away with the breakup fee.

The railway said in an earlier statement that a revised bid from Canadian National "only highlights CN's recognition of the significant regulatory risk of its anticompetitive bid."

Canadian National had offered $325 for each Kansas City Southern share, including $200 in cash and 1.059 Canadian National shares.

The new proposal is still worth $325 a share but now calls for each share of Kansas City Southern to be exchanged for $200 in cash and 1.129 shares of Canadian National stock.

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 believed Canadian Pacific's current bid wouldn'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. Kansas City Southern switching its allegiance signals a belief that the STB will ultimately bless a trust for Canadian National too.

Kansas City Southern said late last month that it was entering into discussions with Canadian National after determining its earlier proposal could "reasonably be expected" to lead to a better deal.

The bids are the first major transactions to be brought before the STB in more than two decades. Whichever suitor ultimately 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 1942ET

Stocks mentioned in the article
ChangeLast1st jan.
CANADIAN NATIONAL RAILWAY COMPANY 1.37% 135.56 Delayed Quote.-3.13%
CANADIAN PACIFIC RAILWAY LIMITED 1.21% 92.64 Delayed Quote.4.91%
DJ INDUSTRIAL -0.42% 34935.47 Delayed Quote.14.63%
KANSAS CITY SOUTHERN 1.43% 267.8 Delayed Quote.31.19%
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Financials
Sales 2021 14 809 M 11 868 M 11 868 M
Net income 2021 4 235 M 3 394 M 3 394 M
Net Debt 2021 12 350 M 9 897 M 9 897 M
P/E ratio 2021 22,7x
Yield 2021 1,80%
Capitalization 95 963 M 76 952 M 76 906 M
EV / Sales 2021 7,31x
EV / Sales 2022 6,72x
Nbr of Employees 24 376
Free-Float 99,4%
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Number of Analysts 25
Last Close Price 135,56 CAD
Average target price 144,62 CAD
Spread / Average Target 6,68%
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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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