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CP Says $30 Bln CN Bid For Kansas City Southern Would Stifle Competition

CP said Wednesday that CN's rival $30 billion takeover of Kansas City Southern is "contrary to the public interest given its adverse impacts on competition".

Canadian Pacific Railway  (CP) - Get Canadian Pacific Railway Limited Report hit back at rival Canadian National's  (CNI) - Get Canadian National Railway Company Report rival bid for Kansas City Southern  (KSU) - Get Kansas City Southern Report Wednesday, arguing the $30 billion takeover would stifle competition and raise freight prices.

In a letter to the Surface Transportation Board, which must approve what it deems to be "major transactions" in the sector, Canadian Pacific said the proposed tie-up between Canadian National and Kansas City Southern would "reduce competitive options for countless shippers" given that they operate parallel lines in key hubs such as New Orleans, Mobile, Alabama, and through eastern Nebraska and western Iowa.

Canadian National said Tuesday it will offer $200 in cash, as well as company stock, in a deal that values Kansas City Southern at $325 per share, a 45% premium to the stock's closing price on March 19 and a 21% improvement to Canadian Pacific's agreed $25 billion bid. 

"Canadian National has informed (Kansas City Southern) that its proposal "would require the same regulatory approvals as those required under the agreement with Canadian Pacific" and that Canadian National would seek to "obtain[] such regulatory approvals on the same terms as in the merger agreement with Canadian Pacific," the letter stated. 

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"Canadian Pacific believes that CN's proposal is illusory and inferior to the proposed Canadian Pacific/Kansas City Southern transaction, and that a Canadian National/Kansas City Southern transaction would be contrary to the public interest given its adverse impacts on competition and other serious concerns."

Kansas City Southern shares surged 15.2% on Tuesday following news of the competing bid from Canadian National to close at $295.50 each. Canadian National's U.S.-listed shares slumped 6.5% to $110.10 each while CP fell 2.8% lower to $355.10 each.

Canadian National said Wednesday that it was "confident its proposed combination is in the public interest, adding it would "effectively address any reasonable remediation concerns and ensure rail customers and other stakeholders benefit from the proposed combination." 

Last month, Kansas City Southern agreed to the Canadian Pacific that valued the group at $275 per share, with shareholders receiving 0.489 of a Canadian Pacific shares for each holding, as well as $90 in cash.

Last week, Kansas City Southern posted weaker-than-expected first quarter earnings as the polar vortex and coronavirus shutdowns hit cargo volumes, but confirmed its full-year profit guidance, with CEO Patrick Ottensmeyer calling the Canadian Pacific takeover "an exciting opportunity for KCS and CP stakeholders"