Major CN Rail shareholder against bid for Kansas City Southern
Canadian National Railway Co. secured the backing of the Caisse de dépôt et placement du Québec (CDPQ) in its blockbuster attempt to purchase Kansas City Southern (KCS), BNN Bloomberg has learned.
In a letter to CN Rail Chief Executive Officer Jean-Jacques Ruest dated May 3, CDPQ Head of Investments in Québec and Stewardship Investing Kim Thomassin communicated the pension fund's support for the deal, pointing to the potential benefits combining the two railways to build a North American freight connection would have in the company’s home province.
"We believe that such a transaction has the potential to not only create jobs in a company based in Montréal, but also to open new markets to Québec export companies and stimulate the economic recovery as a whole," Thomassin wrote in the letter, which was obtained by BNN Bloomberg.
CN Rail is locked in a takeover battle with Canadian Pacific Railway Ltd. for control of Kansas City Southern, with time running out for CP to move back into the pole position. It has until 5 p.m. ET on Thursday to formally respond to the recent determination by Kansas City Southern's board of directors that CN's sweetened US$29.8-billion cash-and-stock proposal is superior to the US$25.2-billion friendly deal that CP announced with KCS on March 21.
In her letter to Ruest, Thomassin described CN's proposal as "high-value" for Kansas City Southern shareholders and all stakeholders, while pointing out that the deal "is in line with CDPQ’s objectives to support both Québec companies in their international growth and the transition toward a low-carbon economy."
According to Bloomberg data, the Caisse is CN Rail's 13th largest shareholder, with a stake of 11.8 million shares -- equal to 1.66 per cent of the company -- as of the end of March.
The support stands in stark contrast to another major CN shareholder that lambasted the company in a public letter released Monday.
TCI Fund Management Ltd., a London-based hedge fund led by billionaire manager Christopher Hohn which owns roughly three per cent of CN Rail, said it is "negligent and hugely irresponsible" for the railroad's board to risk $2 billion on whether the U.S. Surface Transportation Board (STB) will approve a voting trust for its proposed tie-up with Kansas City Southern.
"The STB is sending a clear signal and the CN board has a duty to listen. The risk that the voting trust is not approved is too great to ignore," according to the TCI letter sent to CN Rail Chair Robert Pace on Tuesday. The letter was signed by Hohn and Ben Walker, a partner at the firm.
TCI’s letter was released one day after the STB declared that a CN-KCS deal would be reviewed under stricter merger rules enacted in 2001. It also found that CN's proposed voting trust agreement was incomplete.
CN Rail said in a statement following the STB's directive that it intends to submit another request to use a voting trust for the deal. That would allow Kansas City Southern shareholders to get paid while the railroad can operate separately to CN Rail while awaiting final regulatory approval for the deal. The railroad renegotiated its merger agreement with Kansas City Southern and filed it with the STB earlier on Tuesday.
TCI said CN Rail is making an "extremely reckless" $2-billion bet that the STB will rule in favour of the railroad despite its "tougher stance" on voting trusts. It adds that even if the voting trust is granted to CN Rail, the company could be faced with an "$18 billion liability" if the deal is ultimately not approved and the trust needs to dispose of Kansas City Southern.
With files from David George-Cosh