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Railroad operator Kansas City Southern on Sunday scrapped a $30bn deal with Canadian National, opting instead for a lower offer from Canadian Pacific worth $27bn which may face fewer regulatory hurdles.
It is the latest twist in a months-long takeover battle between the two Canadian railroads, which are pursuing a rare opportunity to extend their US reach by snapping up one of only seven large railroads in North America.
“We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership,” Keith Creel, chief executive of Canadian Pacific, said in a statement.
“This merger proposal provides KCS stockholders greater regulatory and value certainty,” Creel added.
Kansas City Southern said it had notified Canadian National that it intended to terminate their merger agreement and that Canadian National will have five business days to make a fresh bid.
Canadian Pacific’s bid values Kansas City Southern at $300 per share, to be paid in a mix of stock and cash. Kansas City Southern shares closed at $280 apiece on Friday.
is the value per share that Canadian Pacific’s bid values Kansas City Southern
The bid from Canadian Pacific is below the $325 bid agreed previously with Canadian National. However, the US Surface Transportation Board, which regulates railroads, had rejected how the deal with Canadian National was structured.
Following the regulatory concerns, Kansas City Southern’s board said earlier this month it was reconsidering the offer from Canadian Pacific.
A tie-up between Canadian Pacific and Kansas City Southern would still be the smallest of the six remaining big rail operators, whereas a merger with Canadian National would form the third-largest on the continent.
Canadian National is entitled to a $1.4bn termination fee. Of this, $700m was already paid to Canadian Pacific when Canadian National trumped its earlier bid and would be returned. Canadian Pacific has said previously it would cover the remaining $700m that would need to be paid to Canadian National.
The companies have been battling it out to create the first railway spanning Canada, the US and Mexico at a time when the easing of the pandemic and a renewed trade agreement between the countries is expected to boost freight traffic across the borders.