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Canadian Pacific's Merger Bid Gets a Boost From U.S. Regulator

By Lou Whiteman - Apr 26, 2021 at 9:37AM

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CP's deal with Kansas City Southern will be judged by a more-relaxed antitrust standard.

The U.S. Surface Transportation Board (STB) will consider a proposed $30 billion merger between Canadian Pacific Railway (CP -1.19%) and Kansas City Southern (KSU) under more-relaxed guidelines, a big win in Canadian Pacific's effort to gain control of the U.S. railroad.

The two companies last month announced plans to combine to create a railroad that would span North America. Large railroad mergers have been prohibited by the STB since 2001, but those rules included a waiver for Kansas City Southern due to its relatively small size.

A Canadian Pacific train rolls past a grain silo.

Image source: Canadian Pacific.

Canadian National Railway (CNI 0.11%) has submitted its own competing offer to buy Kansas City Southern, setting up a bidding war. Given the scarcity of Kansas City Southern's assets (it's really hard to build new rail routes) and the focus on the bids, most in the industry had expected the STB to rescind the waiver and do a full review of the deal.

But the regulator ruled late Friday that the waiver applies to a potential deal between Canadian Pacific and Kansas City Southern. That means the STB will consider only whether the Canadian Pacific offer would adversely affect competition, and will not consider the more difficult standard of whether the merger is in the public interest.

The ruling comes on the same day that Kansas City Southern's board voted to open negotiations with Canadian National. Though Kansas City Southern officially remains bound by the terms of the Canadian Pacific deal and has not determined that Canadian National's offer is superior, the board has determined there is the potential for a superior proposal.

Canadian Pacific has said it is unwilling to sweeten its proposal in part because it does not believe the Canadian National offer can clear regulators. Though that is far from certain, the STB ruling does give Canadian Pacific a leg up in terms of antitrust considerations.

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Stocks Mentioned

Kansas City Southern Stock Quote
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Canadian Pacific Railway Stock Quote
Canadian Pacific Railway
$70.65 (-1.19%) $0.85
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Canadian National Railway Company
$113.31 (0.11%) $0.12

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