KCS + CN or CP: Timeout Called

While, as expected, “reaffirm[ing] its recommendation to shareholders to vote in favor of the pro-competitive, end-to-end merger with CN,” the KCS board said that since the joint voting trust application is currently under review by the STB, and since the STB announced Aug. 10 that it expects to issue a decision on the use of the CN voting trust no later than Aug. 31, it has determined, “with CN’s concurrence,” that if the STB has not released a public decision by 7:00 p.m. EDT on Aug. 17, the Aug. 19 Special Meeting will be adjourned “to give all shareholders and the board time to receive and consider the STB decision. If the meeting is adjourned, the board will announce the date on which it will reconvene the meeting.” 

If the STB rules in favor of the voting trust, KCS shareholders will receive the CN merger consideration “immediately upon the closing of the voting trust, which is also subject to receipt of KCS shareholder approval and Mexican regulatory approvals.”

Also as expected, the KCS board said that, “following a careful and thorough review in consultation with outside financial and legal advisors, [it] has unanimously determined that the unsolicited proposal received from Canadian Pacific on Aug. 10 to acquire KCS in a cash and stock transaction does not constitute a ‘Company Superior Proposal’ and could not reasonably be expected to lead to a ‘Company Superior Proposal,’ as defined in KCS’s previously announced definitive merger agreement with CN.”

A source who spoke “on background for no attribution” called  CP’s extension of an increased offer to KCS a “strategic move” that “proved successful,” resulting in the KCS board deciding to postpone its shareholders’ vote, adding that the KCS board’s “ultimate recommendation to its shareholders will depend on the STB ruling on CN voting trust.”

Proxy advisor Institutional Shareholder Services Inc. (ISS) recommended that KCS stockholders “ABSTAIN” from voting to approve the CN-KCS merger proposal “to ensure that shareholders are able to make a fully-informed decision” on the CN merger proposal and “are able to fully understand any potential CN voting trust decision from the STB.”

CP, as expected, said that “the revised ISS recommendation validates CP’s long-standing belief that KCS stockholders should have all relevant information, including the STB decision on the CN voting trust, to be able to make an informed decision, avoid being locked into the CN-KCS deal and preserve the ability to consider a better alternative proposal. CP has filed a proxy statement asking stockholders to vote ‘AGAINST’ the proposed CN-KCS combination at the Aug. 19 KCS stockholders meeting so that KCS stockholders are not locked into the CN-KCS deal and unable to consider other, better, options. That includes CP’s revised superior offer submitted to KCS on Aug. 10, which we stand by. A vote to ‘ABSTAIN’ and vote ‘AGAINST’ are essentially the same since they both withhold approval of the CN merger proposal.”

Editor’s Note: Yes, I know, power plays and hat tricks are usually associated with hockey, not football. But in this case, drawing parallels with Canada’s favorite pastime is rather fitting, eh? – William C. Vantuono

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