According to people familiar with the situation, Kansas City Southern is expected to abandon its merger deal with Canadian Pacific Railway Ltd. in favor of a rival plan from Canadian National Railway Co., a drastic shift with far-reaching consequences for the rail industry in the United States.
The expected change follows Canadian Pacific’s decision earlier Thursday to stick to the terms of its already-agreed agreement with Kansas City Southern after the US railroad operator suggested it would prefer a Canadian National topping bid. The decision could be made public as early as Friday.
There’s no assurance that Kansas City Southern would cancel the Canadian Pacific agreement; it may always change its mind. Canadian Pacific had hoped that recent losses for Canadian National’s higher offer would make sweetening its deal pointless. Still, the anticipated development suggests that sees the cash-and-stock bid gap as too large to ignore.
Canadian National’s offer was worth around $320 a share based on Thursday’s closing rates, while Canadian Pacific’s was worth around $287. The proposals were worth roughly $30 billion and $25 billion when they were announced. Canadian Pacific is now forced to wait to see whether regulators reject the Canadian National offer, giving it another chance. Canadian Pacific’s preliminary approval from the US Surface Transportation Board will survive the termination.
Kansas City Southern is the smallest of the United States’ main freight railroads. It plays a significant role in U.S.-Mexico trade, with a network that stretches through both countries, contributing to its attractiveness as a target for acquisition. Canadian Pacific is the smaller of the two bidders, with less overlap with Kansas City Southern, which may help it gain antitrust approval.