David George-Cosh

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The head of Canadian National Railway Co. is urging investors to be patient as Canada's largest railway awaits regulatory approval for its US$30-billion acquisition of Kansas City Southern (KCS). 

Jean-Jacques Ruest, Canadian National’s president and chief executive officer, said in an interview Wednesday that blockbuster deals, like CN’s planned acquisition of KCS, could drastically change the North American railroad industry - but that won't happen overnight. 

"It's a moment in time where CN and KCS can actually change how railroading is done in North America from a competition point of view," Ruest said, adding that the deal would help spur widespread economic growth and create jobs. 

Ruest said that long-term investors shouldn't expect to see a return on the KCS deal "in the next two to three weeks" as he expects the combined railroad to fully come together by early 2023. 

He noted that Canadian National expects to hear from the U.S. Surface Transportation Board (STB) on a proposed voting trust arrangement with KCS "in the next few weeks", after which KCS shareholders will vote on the acquisition while the railroad awaits final regulatory approvals. 

As of Thursday, CN’s shares have shed approximately 11 per cent of their value on the Toronto Stock Exchange since Apr. 20 when the company’s offer for KCS was disclosed. That offer has been valued at US$325 per share; Kansas City Southern shares have consistently traded at a discount to that level, suggesting investors aren’t convinced the deal will go through.

"This is not the first transaction we have done. We have done five over the years, the biggest was Illinois Central [in 1998]," Ruest said. 

"Shareholders and others would like the answer early, but these are major transactions and they need to be done properly and that’s the path we are on. This is for the long term." 

Ruest stated earlier in the interview that Canadian National is focused on completing the KCS deal, and declined to comment about whether the company had any back-up plans if the acquisition is rejected by regulators. He said he is optimistic that the U.S. transportation regulator will approve the company's proposed voting trust. 

"Our focus has been to put all of our energy to prove to the board that we meet their requirements, especially as it relates to the voting trust, which is really the item right now that's right in front of the STB," Ruest said.