MARCH 17, 2023:
U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) are disappointed that the Surface Transportation Board (STB) has approved the Canadian Pacific Railway’s merger with Kansas City Southern Railroad.
In public comments submitted to the STB on the proposed merger in February 2022, USW said the market power held by the Class I railroads has serious implications for U.S. wheat’s competitiveness compared to other major exporters. NAWG shared similar public comments with the STB in February 2022, which outlined how reliant wheat is on rail and how decreased rail-to-rail competition hurts shippers and growers alike. Now, this merger takes the U.S. rail system from seven to six Class 1 railroads.
USW and NAWG believe the STB has given a greenlight to rail consolation without regard for the consequences on agricultural shippers from lack of competition in the U.S. rail sector.
“U.S. rail industry consolidation has led to poorer, not improved, service for agricultural shippers,” said USW President Vince Peterson. “In addition, we see extreme disparity in rates for wheat shippers. Rail rates over the last decade have increased exponentially and rates for wheat are higher than rates for other commodities even with similar handling characteristics. Those higher rates make U.S. wheat less competitive in the global market at a time when higher prices already hurt our competitiveness.”
“NAWG is disappointed by today’s STB announcement and maintains our concerns that the merger of CP and KCS will impede competition in the rail market and increase rail rates,” said NAWG CEO, Chandler Goule. “With 50 percent of wheat being exported, wheat is heavily reliant on rail transportation to move across the United States. Since the merger was announced in 2021, NAWG has filed four public comments with the STB opposing the merger, citing a myriad of concerns on the impact to competition, unfair access to competing wheat producing countries, and changes to tariff provisions that could impact wheat farmers.”
USW and NAWG believe the STB must conduct more rigorous oversight of rail rates and service issues going forward. The STB should also aggressively pursue policies designed to inject competition such as reciprocal switching – a proposal that the STB ironically shelved last year because Class 1 rail service was severely challenged for agricultural shippers.
USW and NAWG continue to review the conditions the STB included in the merger agreement that are intended to protect competition and mitigate impacts on communities. We look forward to working with both the new CP-KCS railroad and the STB on addressing the disparities wheat shippers face going forward.
MARCH 15, 2023:
Extended version:
DECEMBER 2021:
Kansas City Southern says its sale to Canadian Pacific Railway is officially complete. The deal is estimated to be worth $31 billion.
CP President and CEO Keith Creel says it’s a historic day for both companies. “CPKC will become the backbone connecting our customers to new markets, enhancing competition in the U.S. rail network, and driving economic growth across North America,” Creel says. “All of this happens while we will deliver significant environmental benefits. We’re excited to be on a path to creating a truly unique North American railroad.”
The Kansas City Southern board of directors and management team says they are proud of the countless contributions and achievements of all those who work for KCS. A company statement says, “We are excited for the possibilities that open to us through this combination with CP and look forward to the next chapter.” The companies await approval from the Surface Transportation Board allowing CP’s control of KCS railroads.
SEPTEMBER 16, 2021:
Kansas City Southern Wednesday (Sept. 15, 2021) announced the termination of a merger agreement with Canadian National Railway, saying they’ve entered a merger agreement with Canadian Pacific Railway, presumably ending the bidding war for KCS.
Kansas City Southern determined the proposal from Canadian Pacific continues to demonstrate a “Company Superior Proposal” under the pending agreement with Canadian National. Upon closing of Canadian Pacific’s voting trust, each share of KCS common stock will be exchanged for $90 in cash and 2.8 shares of CP common stock. Closing will be subject to approval by the stockholders of Canadian Pacific and KCS and regulatory approvals.
In connection with the termination of the Canadian National merger agreement, KCS is paying CN a breakup fee of $700 million. Kansas City Southern will also return an additional $700 million Canadian National paid to KCS. Kansas City Southern will schedule a new Special Meeting of Stockholders for KCS stockholders to vote on the CP merger agreement.
SEPTEMBER 13, 2021:
Kansas City Southern Railway says the bid from Canadian Pacific may be the superior proposal compared to an offer by Canadian National, which didn’t gain Surface Transportation Board preliminary approval. Legal and financial advisers conclude the deal could reasonably be expected to lead a “Company Superior Proposal” as defined in KCS’s merger agreement with Canadian National. KCS remains bound by the terms of the Canadian National merger agreement, in which CN agreed to acquire KCS in a stock and cash transaction valued at $325 per KCS share. The renewed offer from Canadian Pacific Railway is a cash and stock transaction valued at $300 per KCS share. Canadian Pacific maintains that a CP-KCS merger is the only viable option for KCS following the Surface Transportation Board ruling. Kansas City Southern announced last week it would engage in discussions with Canadian Pacific Railway. Kansas City Southern also scheduled a September 24 stockholders meeting to vote on the Canadian National proposal.
AUGUST 31, 2021:
OMAHA, Neb. (AP) — Canadian National’s $33.6 billion deal to acquire Kansas City Southern railroad is in jeopardy. Federal regulators on Tuesday rejected a key part of the plan and opened the door for a competing $31 billion offer from Canadian Pacific Railway. The Surface Transportation Board says Canadian National won’t be able to use a voting trust to acquire Kansas City Southern and hold the railroad while the board reviews the overall deal. It wasn’t immediately clear whether Kansas City Southern will still want to move forward with CN. But Kansas City Southern is now free to accept CP’s offer, which already has regulatory approval to move forward.
AUGUST 10, 2021:
UNDATED (AP)- Canadian Pacific jumped back into the bidding war for Kansas City Southern Tuesday with an increased $31 billion offer for the U.S. railroad, but its latest bid remains lower than the rival $33.6 billion offer from Canadian National that Kansas City Southern accepted back in May. Still, the new offer from Canadian Pacific will give Kansas City Southern shareholders more to think about before they vote on the CN deal on Aug. 19. Investors are also still waiting to hear whether the U.S. Surface Transportation Board will approve a key part of CN’s plan to acquire Kansas City Southern, and that decision could come any day.
MAY 20, 2021:
OMAHA, Neb. (AP) — Canadian Pacific is urging Kansas City Southern to reject Canadian National’s rival $33.6 billion takeover bid, but it still refuses to increase its own $25 billion bid. Canadian Pacific maintained Thursday that Canadian National’s bid won’t be approved by regulators because it would hurt competition and add to rail congestion around Chicago, so CEO Keith Creel doesn’t see a need to increase its offer. Kansas City Southern officials didn’t immediately respond Thursday morning, but a week earlier they backed the CN offer after it was increased. Canadian National has said it doesn’t believe its bid would significantly hurt competition.
MAY 17, 2021:
Canadian National Railroad outbid Canadian Pacific in its attempt to buy the Kansas City Southern Railroad.
Global News says Kansas City Southern determined that CN’s revised bid of $33.6 billion was better than the $25 billion it had already gotten from Canadian Pacific. The new CN offer includes $200 in cash for each KC Southern share, but Canadian National upped its offer of 1.129 shares of its stock. The transaction also includes about $3.8 billion in Kansas City Southern’s debt.
Canadian National’s President says the combined railroad will connect Canada with the U.S. and Mexico and take advantage of the expected growth in trade between the three nations in the U.S.-Mexico-Canada Agreement. KC Southern had been reviewing both bids and holding talks with both potential buyers since CN got involved with the bidding last month. So far, Canadian Pacific has declined to up its offer for KC Southern.
CP officials say the Canadian National deal will have trouble getting approved by regulators concerned about the deal’s impact on competition. CP says combining KC Southern and Canadian National would hurt competition because they both have rail lines that compete for business between the Midwest and the Gulf Coast. Canadian Pacific’s network connects to KC Southern near its headquarters, but the two railroads don’t overlap elsewhere.
APRIL 21, 2021:
Canadian National Railway Tuesday made a rival bid for Kansas City Southern. The proposed cash-and-stock transaction is valued at $33.7 billion. The proposal represents a 21 percent premium over the implied value of the Canadian Pacific transaction. Dow Jones reports the new bid from Canadian National is $200 in cash and 1.059 Canadian National shares for each Kansas City share. That works out to roughly $325 a share. The prior bid is $90 a share and 0.489 Canadian Pacific shares for each Kansas City share, worth roughly $270 a share. Regardless of who wins the bidding war, the winners of the looming battle look to be KCS shareholders, as shares are up 25 percent for the year. In a news release, Canadian National states, “CN is ideally positioned to combine with KCS to create a company with broader reach and greater scale, and to seamlessly connect more customers to rail hubs and ports in the U.S., Mexico and Canada.”
MARCH 24, 2021:
Canadian Pacific Railway and Kansas City Southern have come together in a merger agreement worth approximately $29 billion.
The transaction has the unanimous support of both boards of directors. Following final approval from the U.S. Surface Transportation Board, the transaction will form two railroads that create the first rail network connecting the U.S., Mexico, and Canada.
The two railroad systems come together in Kansas City and will connect customers via single-network transportation offerings between points on CP’s system in Canada, the U.S. Midwest, and the U.S. Northeast, as well as points on the KCS system through Mexico and the Southern U.S. The two companies say their combined network’s new single-line offerings will deliver dramatically wider market reach for customers served by CP and KCS, provide new competitive transportation service options, and support North American economic growth. Additionally, the expected efficiency and service improvements should achieve meaningful environmental benefits.
Mike Steenhoek, Executive Director of the Soy Transportation Coalition, says it’s normal to have concerns about a merger like this.
“It’s healthy to be concerned, given how past mergers and acquisitions resulted in a reduction of rail service access rates or increased rates among agricultural shippers,” he says. “However, there’s also little service overlap between the rail companies, which means this proposed merger may result in increased service options.”
MARCH 22, 2021:
OMAHA, Neb. (AP) — Canadian Pacific’s proposed $25 billion acquisition of Kansas City Southern would be the first major railroad merger since the 1990s, but analysts say this deal has a better chance of success than past failed ones because there is little overlap between the two railroads. Morningstar analyst Matthew Young said he doesn’t think the proposed deal will hurt competition overall because the railroads don’t compete directly now. The cash and stock deal announced Sunday is also set to capitalize on growing trade across North America by creating the first railroad that would link the United States, Mexico and Canada.
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