Jamie Murray discusses CP Rail
Canadian Pacific Railway Ltd.’s chief executive officer tried to quash speculation that a bidding war is at hand for Kansas City Southern.
Rival bidder Canadian National Railway Co. has deeper pockets, giving it an advantage if money is the sole consideration for the U.S. carrier, Canadian Pacific CEO Keith Creel said Wednesday.
“We don’t want a bidding war,” he said at conference sponsored by the North East Association of Rail Shippers. “It’s not something that we’ll participate in, and ultimately, it’s a war that we would not win.”
Creel’s comments were the latest in a series of negotiations in the public square over which Canadian railroad should win the U.S. carrier. Kansas City Southern is prized for its network to the southern coast of the U.S. and into Mexico.
Kansas City Southern erased gains after Creel spoke, trading down 1.3 per cent to US$295.65 at 1:13 p.m. in New York. The stock had advanced 47 per cent this year through Tuesday after a private-equity offer put the railroad in play last year. Canadian Pacific and Canadian National were little changed in Toronto.
Canadian Pacific last month reached an agreement to acquire Kansas City Southern for US$25 billion. Its larger rival countered with a US$30 billion bid April 20, which the U.S. railroad is considering.
Canadian Pacific is betting than its bid will gain favor with Kansas City Southern shareholders because the offer is more likely to get approved by U.S. regulators, Creel said. Canadian National’s network overlaps with Kansas City Southern’s.
The U.S. Surface Transportation Board, which has the final say on rail mergers in the country, has also decided that Canadian Pacific’s merger proposal is exempt from strict merger rules adopted in 2001 to slow industry consolidation. The board hasn’t ruled on Canadian National’s offer.
“There’s uncertainty in their path to a transaction. There’s certainty in our path to a transaction,” Creel said. “So, at a value standpoint, they are not the same deals.”
Regulators are also considering both suitors’ plans to use a voting trust to close a deal, which would allow shareholders to reap the benefits before the companies are merged operationally.
“If the uncertainty is cleared up, and if we both have an ability to close into trust, then what you have is a bidding war,” Creel said. “They do have a bigger balance sheet. They do have an ability to use the power of their balance sheet to buy up and snuff out competition.”
Canadian National CEO Jean-Jacques Ruest said any competition issues with his company’s merger proposal can be dealt with. “We’re convinced there’s no insoluble regulatory problem,” he said Wednesday on BNN Bloomberg Television.
When asked whether Canadian National would be prepared to increase its offer, Ruest said: “We have a very superior offer from a financial point of view, there’s no doubt -- US$325 is bigger than US$275, that’s the obvious.” Now that CN has started the due diligence process, “we will be better educated in, say, two weeks from now as to what other synergies we can create.”