KCS and CN enter merger

Kansas City Southern Kansas City Southern (KCS) has terminated the agreement with Canadian Pacific Railway and agreed to combine its business with Canadian National Railway (CN) under a USD 33.6 billion transaction.

Under CN’s proposed voting trust, KCS would maintain complete independence. KCS will continue to be managed by its existing management and board of directors, with a trustee who is a former chief executive of KCS. KCS will remain intact and preserve its ability to pursue its independent business objectives. CN will have no influence over the day-to-day management or operation of KCS.

CN and KCS jointly filed with the Surface Transportation Board (STB) a renewed motion for approval of its voting trust that outlines the case for approval of the voting trust to advance the CN-KCS merger that will enhance competition, spur economic growth, and realise the benefits of a fully end-to-end transport network across the continent. The filing highlights that the voting trust protects against premature control of KCS and protects KCS’ financial health, that CN remains financially sound, the substantial benefits to be gained from the transaction by customers and the nearly 1,100 stakeholders who have already supported the transaction.

As part of the application, CN is committing to divesting KCS’ 112.6-km line between New Orleans and Baton Rouge, which is less than 0.7 per cent of the approximately 27,000 route-miles (32,186 km) the two companies operate. The commitment eliminates the sole area of overlap between the CN and Kansas City Southern networks, thereby making the combination an end-to-end transaction. This commitment, plus CN’s multiple other pro-competitive commitments, including keeping existing gateways open on commercially reasonable terms, addresses any competitive concerns.

“We believe our early commitment to eliminating the minimal rail overlap and to laying out the case for a CN-KCS combination should allow the STB to approve our voting trust. A trust is an essential step so KCS shareholders can receive the full value of their shares while the STB considers our case for a combined, end-to-end rail network and the significant public benefits of connecting the continent,” JJ Ruest, president and chief executive officer of CN said.

Kansas City Southern has rail investments in the U.S., Mexico and Panama. Company’s international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50 per cent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal.

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