CN-KCS Combination Facing Mounting Opposition; Reduced Competition Touted as Significant Concern Among Stakeholders

Canadian Pacific Railway Limited announced that more than 110 customers and other stakeholders have filed letters with the Surface Transportation Board (“STB”) to express concerns about and/or opposition to Canadian National’s (“CN”) unsolicited proposal for Kansas City Southern (“KCS”). The letters from customers and other stakeholders highlight growing concerns that the CN-KCS combination would reduce competition in the Canada-U.S.-Mexico corridor.

The letters were filed with the STB by stakeholders large and small across the North American transportation supply chain, and include North Dakota Grain Dealers Association, US Development Group, Farmers Cooperative of Hanska and the Premier of New Brunswick.

Notable excerpts from the letters include:

–“The backbone of North Dakota’s economy is agriculture and over 80% of North Dakota’s grain moves to market by rail. North Dakota grain shippers are in a captive rail market which limits competition and our options for market destinations. A CP-KCS combination should provide CP grain shippers expanded access to markets across the United States, Mexico, Canada, and even internationally. The bid by CN would effectively end any opportunity for market expansion for North Dakota CP grain shippers.” – North Dakota Grain Dealers Association

–“A CN-KCS combination would do nothing to benefit Farmers Coop of Hanska and our U.S. Upper Plains grain shipping facilities but would instead decrease competition overall.” – Farmers Cooperative of Hanska

–“[W]e have no indication of CN’s receptivity to potential expansion into markets desired by our current and future customers both in Mexico and North America. We believe a CN-KCS merger would provide inferior service options. From our perspective the only combination involving KCS that is in the public interest is the one that CP has proposed.” – US Development Group

–“I urge the U.S. Surface Transportation Board to reject CN’s request for a voting trust structure and reject any waiver from a full public interest review for CN’s voting trust proposal. On the other hand, since CP’s proposed acquisition of KCS raises none of the same competition concerns and would in fact enhance competition and further level the playing field for rail shippers in North America, the Board should approve its proposed voting trust.” – Blaine M. Higgs, Premier of New Brunswick

To date, CP has received almost 500 letters that have expressed support for the CP-KCS transaction, many of which request the STB to review the transaction as swiftly as possible so the end-to-end network could be integrated for the benefits of all stakeholders and North American economic growth.

In its April 23 decision to review the CP-KCS transaction under the pre-2001 merger rules, the STB noted that a CP-KCS combination would “result in the fewest overlapping routes when compared to a merger between KCS and any other Class I carrier” and “if approved, the combination of CP and KCS, the sixth largest and seventh largest Class I railroads, respectively, would still result in the smallest Class I railroad, based on U.S. operating revenues. (…) In sum, the Transaction appears to fall neatly into the Board’s rationale for adopting the waiver in the first instance.” CP strongly believes that the CP-KCS combination is the only one in the public interest and that the STB will evaluate the negative public interest consequences of a CN-KCS transaction.

The STB’s decision is an important step for the regulatory approval of the CP-KCS combination, which was announced on March 21, 2021, and remains subject to the STB review as well as the approvals of CP and KCS shareholders and other customary closing conditions. The STB review is expected to be completed by the middle of 2022.

For more information on the transaction and the benefits it is expected to bring to the full range of stakeholders, visit FutureForFreight.com.

About Canadian Pacific

Canadian Pacific is a transcontinental railway in Canada and the United States with direct links to major ports on the west and east coasts. CP provides North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpr.ca to see the rail advantages of CP. CP-IR

About KCS

Headquartered in Kansas City, Mo., Kansas City Southern (KCS) (NYSE: KSU) is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holding is The Kansas City Southern Railway Company, serving the central and south central U.S. Its 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 percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS’ North American rail holdings and strategic alliances are primary components of a railway network, linking the commercial and industrial centers of the U.S., Mexico and Canada. More information about KCS can be found at www.kcsouthern.com.

Source: Canadian Pacific Railway Limited