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.
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.