Kansas City Southern said a proposal by Canadian National Railway Co. may lead to better terms than an offer by Canadian Pacific Railway Ltd., potentially escalating a bidding war in one of the industry’s biggest potential deals in decades.

Kansas City Southern said Saturday it will begin talks with Canadian National Railway, confirming an earlier Bloomberg News report. The negotiations could yield a “superior proposal” than one reached last month with Canadian Pacific Railway, it said. The U.S. rail operator remains bound by the earlier merger agreement and there’s no assurance that talks with the rival bidder would result in a transaction, it added.

The two biggest Canadian railroads are battling for ownership of the U.S. company, seeking to extend their rail links not just within the two countries, but also through Mexico to take advantage of a reworked North American trade alliance called the United States-Mexico-Canada Agreement or USMCA.

This week, Canadian National offered US$30 billion to snatch Kansas City Southern, valuing the company at US$325 per share in a cash-and-stock deal. The proposal topped a US$25 billion deal Kansas City reached with Canadian Pacific last month.

“This is the right combination to bring the renegotiated USMCA to life in a meaningful way,” Robert Pace, chairman of Canadian National, said in a statement Saturday, touting its more than a century of operations in the U.S.

Rival Canadian Pacific said on Saturday that it will “fully support” Kansas City Southern’s decision to review the competing offer, adding that the U.S. company will see that the rival bid is “fraught with challenges, uncertainties and regulatory risks” that aren’t present in its current agreement.

Canadian Pacific has already won a petition for its proposed tie-up to be exempt from tougher merger rules that the regulator had established in 2001, lowering the burden for winning approval of the deal.

The Surface Transportation Board, which is the final authority on rail acquisitions, said it approved the petition in part because the combination would remain the smallest of the large North American railroads, and would “result in the fewest overlapping routes” when compared to a Kansas City Southern merger with any other large railroad.

Earlier in the week, Canadian Pacific Chief Executive Officer Keith Creel called Canadian National’s takeover bid “fool’s gold,” saying it has little chance of U.S. regulatory approval.

Canadian National countered Thursday, accusing Canadian Pacific of trying to distract investors with “inaccurate and unfounded assertions.” In a letter to Kansas City Southern CEO Pat Ottensmeyer, it said Canadian Pacific was trying to advance its own interests and deprive investors of the full value of their shares.

--With assistance from Bill Haubert.