Aug.31 (Reuters) – The U.S. rail regulator on Tuesday rejected a fiduciary voting structure that would have allowed the Canadian National Railway Company (CNR.TO) to proceed with its proposed $ 29 billion acquisition of its American counterpart Kansas City Southern (KSU.N).
The move, which the regulator said was made because of antitrust concerns, dealt a blow to the deal that would create the first direct railroad connecting Canada, the United States and Mexico.
The voting trust would temporarily own Kansas City Southern without Canadian National exercising control. This would have allowed Kansas City Southern shareholders to receive and keep the $ 325 per share in cash and stock that Canadian National was offering, even if the combination was subsequently rejected by the regulator, the US Surface Transportation Board (STB ).
The STB said it was leaving the door open for companies to request a full review of their merger proposal. Regulatory experts said the process would be uncertain and could take more than a year. The companies did not immediately respond to requests for comment on their next steps.
Kansas City Southern has an alternative suitor, Canadian Pacific Railway Ltd. (CP.TO), whose $ 25 billion deal to buy the company in March was later beaten by Canadian National.
The Canadian Pacific Railway’s proposed voting trust was approved in May, and this month the company presented a new $ 27 billion cash and stock offer on Kansas City Southern, confident the STB would reject the trust. of Canadian National. Read more
Canadian Pacific said in a statement that it informed Kansas City Southern on Tuesday that its $ 300 cash and stock offer was still valid and would expire on September 12 if Kansas City Southern had not yet recognized it as superior to its deal with. the Canadian National. .
Kansas City Southern shares closed Tuesday down 4.39% at $ 280.67. Shares of Canadian National closed up 7.36% at $ 148.40, indicating relief to shareholders that the acquisition now appears unlikely. Shares of Canadian Pacific Railway fell 4.55% to C $ 86.69, underscoring shareholders’ apprehension about paying for a deal with Kansas City Southern.
After the STB’s decision, one of Canadian National’s shareholders, hedge fund TCI Management Ltd, sent a letter to the company’s board urging it to rescind its deal with Kansas City Southern and replace the CEO. Jean-Jacques Ruest by Jim Vena, a veteran of both National and Union Pacific. Vena could not immediately be reached for comment.
“The board must take responsibility for the recent underperformance and failure of the company,” TCI said in the letter. The fund, led by hedge fund veteran Chris Hohn, owns a 5.2% stake in Canadian National and is also the largest shareholder of Canadian Pacific.
The STB said that although the overlap of the Canadian National and Kansas City Southern networks was limited to 70 miles between Baton Rouge and New Orleans, the two railroads operated parallel lines in the central part of the United States. and could face less pressure to compete if the voting trust was approved.
“The Commission considers that the applicants have not demonstrated that their use of a voting trust would be in the public interest” the STB noted in his decision. He added that he was not making a final decision on whether the competition concerns facing the deal could be resolved.
President Joe Biden has issued sweeping executive orders to promote competition in the US economy. An order encouraged the STB to consider Amtrak’s statutory rights when assessing whether a rail merger was in the public interest.
The majority-owned U.S. government passenger railroad Amtrak had opposed the Canadian National voting trust, saying its promise to cede the Baton Rouge line to New Orleans would hurt future passenger service in Louisiana.
Reporting by Shreyasee Raj and Abhijith Ganapavaram in Bengaluru and Greg Roumeliotis in New York; Editing by Sriraj Kalluvila and David Gregorio
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