Canadian Pacific Railway president and CEO Keith Creel addresses the company's annual meeting in Calgary, Wednesday, May 10, 2017.THE CANADIAN PRESS/Jeff McIntosh

CP Rail asks U.S. regulator to rule on its and CN’s rival Kansas City Southern bids

CP Rail asks U.S. regulator to rule on its and CN’s rival Kansas City Southern bids

CALGARY — The CEO of Canadian Pacific Railway Ltd. says a rival bid for Kansas City Southern by Canadian National Railway Co. carries a bigger price tag but can’t win U.S. regulatory approval because of its negative affects on competition.

During the Calgary-based company’s first-quarter financial results call Wednesday after markets closed, CP CEO Keith Creel listed off a long series of “truths” that suggest CP’s offer made last month is better for shippers and investors than CN’s competing bid made Tuesday.

“So, were my eyes opened yesterday when I read the press release? The truth is yes, the headline number was undeniably eye-opening: 325 bucks (US per share),” Creel said.

“But the reality is that only matters if its attainable. Unrealized value is still equal to zero. If you can’t do the deal, if it’s not doable, you never get there.”

In response to an analyst’s question, Creel said on the call CP is not considering increasing its bid for KCS because it doesn’t want to put its balance sheet at risk.

On Tuesday, Montreal-based CN announced a cash-and-stock bid valued at US$33.7 billion for Kansas City, Mo.-based KCS, topping one made last month by Calgary-based CP Rail valued at US$25 billion.

Earlier on Wednesday, CP said is it is appealing to the U.S. regulator that governs railway mergers to rule on CN’s claim that its offer will be assessed in the same way as CP’s bid.

“Because of the far more serious public interest concerns posed by CN’s proposed acquisition of KCS, CN’s suggestion that its proposal should be subject to the same regulatory treatment as the CP-KCS transaction is incorrect,” CP said in a news release ahead of its annual general meeting.

“Whereas a Canadian Pacific transaction raises none of the issues that motivated the new merger rules in 2001, the CN proposal raises all of them, especially competitive and downstream consolidation concerns.”

CP charges that a CN-KCS merger would “destabilize” the rail network balance in North America that has prevented further consolidation of the six largest railroads for two decades, adding it would leave CP as a disadvantaged “odd-man-out” in a six-railroad North America.

CP has asked the U.S. Surface Transportation Board to rule that its combination with KCS qualifies under a waiver the regulator granted to KCS in 2001 from more stringent merger rules adopted to protect competition.

It says the STB should make it clear that CN’s bid will not qualify for the same exemption.

Also Wednesday, CN announced that it has notified the STB that it intends to apply for authority to combine with KCS under current merger rules and also seeking approval of its plan to employ a voting trust so that KCS shareholders can be paid out while awaiting final STB approval.

“We believe the STB and our customers will recognize that CN presents the best solution for the continued growth, development and prosperity of the North American economy,” said CEO Jean-Jacques Ruest in a statement.

“CN has made a superior proposal and is committed to satisfying the current STB merger rules. CN is confident that the STB will approve the voting trust, which will permit KCS shareholders to crystallize the value of its U.S. and Mexico franchise, and then permit the STB to undertake the careful review process it should take following the closing into the voting trust.”

The company said it is confident it can address any reasonable remediation concerns and it supports an STB review under modern rules, as opposed to “rules from four decades ago that have been opposed by virtually every other party to have filed before the STB.”

KCS’s rail assets in Mexico have long made it a desirable takeover target.

A CN-KCS combination would be the third-largest Class 1 railroad in North America by revenue, while a CP-KCS merger would remain the smallest of the six remaining railroads.

CN noted a combined CN-KCS would be the fifth-largest railway by network length in the United States, behind the four big American Class 1 railroads but ahead of CP.

There was only brief mention of the proposed KCS merger at the CP annual meeting on Wednesday morning, where shareholders voted 99 per cent in favour of a share-split resolution to issue five new CP shares for each existing share.

After markets closed, CP reported first-quarter net income of $602 million on revenue of $1.959 billion, compared with $409 million on $2.0 billion in the year-earlier period.

Analysts had expected net income of $593 million on $1.995 billion in revenue, according to financial data firm Refinitiv.

This report by The Canadian Press was first published April 21, 2021.

Companies in this story: (TSX:CP, TSX:CNR)

Dan Healing, The Canadian Press

CP Rail

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

If you're heading out to the West Country have a plan in case things go wrong, says Clearwater Regional Fire Rescue Services fire chief Steve Debienne.
(Photo from CRFRS Facebook)
West Country visitors should have an emergency plan: regional fire chief

Cellphones can’t be relied on in many back country areas

Rode
Sarcevic leads an impressive list of additions to RDC Kings soccer

In 2019 the RDC Kings soccer program took a major step forward… Continue reading

The Red Deer PCN Women's Fun Run will take on a different look this weekend with rising COVID-19 numbers.
Women’s Fun Run goes ahead this weekend in Red Deer

With new public health measures in place because of rising COVID-19 case… Continue reading

Alberta’s chief medical officer of health Dr. Deena Hinshaw asked Albertans to limit travel throughout the province as COVID-19 cases continue to rise. (Photo by Chris Schwarz/Government of Alberta)
Red Deer nears 900 active COVID-19 cases

Province reports additional 2,211 COVID-19 cases

David Eggen, the NDP’s advanced education critic, said the UCP government has been focused on cutting funding to post-secondary institutions across Alberta. (Contributed photo)
NDP worry new status for Red Deer College doesn’t mean more funding

This week the province announced that RDC will become a polytechnic institute

Alberta Health Services locked the Whistle Stop Cafe in Mirror on Wednesday morning after owner Christopher Scott refused to comply with health orders. (Photo by Paul Cowley/Advocate staff)
UPDATED: AHS shuts down Whistle Stop Cafe for defying health orders

Justice minister promises to get tough with those ignoring public health orders

Wizards beat Raptors in OT, Toronto playoff bid nearly over

Wizards beat Raptors in OT, Toronto playoff bid nearly over

Toronto Blue Jays' Teoscar Hernandez (37) hits a single to drive in two runs against the Oakland Athletics during the sixth inning of a baseball game in Oakland, Calif., on Thursday, May 6, 2021. (AP Photo/Tony Avelar)
Grichuk drives in 5, Jays beat A’s 10-4 for series split

Grichuk drives in 5, Jays beat A’s 10-4 for series split

Canada's Sports Hall of Fame 2019 inductee Jayna Hefford speaks in Toronto on Wednesday, October 23, 2019. THE CANADIAN PRESS/Frank Gunn
Three Canadian teams to play in women’s hockey Dream Gap Tour in Calgary

Three Canadian teams to play in women’s hockey Dream Gap Tour in Calgary

Rugby Canada says some members of women’s sevens team have tested positive for COVID

Rugby Canada says some members of women’s sevens team have tested positive for COVID

Team Canada skip Kerri Einarson, centre, makes a shot as lead Briane Meilleur, left, and second Shannon Birchard sweep against Denmark at the Women's World Curling Championship in Calgary, Alta., Thursday, May 6, 2021.THE CANADIAN PRESS/Jeff McIntosh
Einarson’s five-game win streak ends with loss to Japan at world curling playdowns

Einarson’s five-game win streak ends with loss to Japan at world curling playdowns

FILE - In this Feb. 24, 2020, photo, the Olympics rings are reflected on the window of a hotel restaurant as a server with a mask sets up a table, in the Odaiba section of Tokyo. The vaccine rollout in Japan has been very slow with less than 1% vaccinated. This of course is spilling over to concerns about the postponed Tokyo Olympics that open in just over three months.(AP Photo/Jae C. Hong, File)
Canadian athletes, coaches applaud news of vaccine doses ahead of Tokyo

Canadian athletes, coaches applaud news of vaccine doses ahead of Tokyo

Minister of Employment, Workforce Development and Disability Inclusion Carla Qualtrough holds a press conference on Parliament Hill in Ottawa on Thursday, Sept. 24, 2020. THE CANADIAN PRESS/Sean Kilpatrick
Liberals pressed to ease access to EI parental leave to help unemployed moms

Liberals pressed to ease access to EI parental leave to help unemployed moms

Katie Telford, Chief of Staff to the Prime Minister, appears as a witness via videoconference during a House of Commons finance committee in Ottawa, Thursday, July 30, 2020. The Canadian Press has learned that Katie Telford has written members of the defence committee inquiry into allegations of sexual misconduct against Canada's former top military commander, offering to testify at their meeting Friday. THE CANADIAN PRESS/Sean Kilpatrick
PM’s chief of staff offers to testify on Vance sexual misconduct allegations

PM’s chief of staff offers to testify on Vance sexual misconduct allegations

Most Read