Canadian National Railway (CNI -1.04%) is reportedly preparing to sweeten its offer for Kansas City Southern (KSU), stepping up its effort to pry the target away from merger partner Canadian Pacific Railway (CP -0.06%).

In April, Canadian National launched a surprise $33 billion bid for Kansas City Southern, topping Canadian Pacific's $30 billion agreement. Kansas City Southern's board is currently reviewing the new proposal, but Canadian National isn't waiting for a decision.

Two KSU trains passing each other on the rails.

Image source: Kansas City Southern.

The Wall Street Journal reported today that Canadian National is preparing to add to its already higher offer, potentially pledging to cover the $700 million breakup fee Kansas City Southern would owe if it abandons Canadian Pacific. Other changes were possible, with Kansas City Southern reportedly asking Canadian National to make some adjustments to its proposal.

The move could be seen as an indication Canadian National believes it is close to winning its target and is hoping one last push will secure a deal, or it could be viewed as a sign that Canadian National believes its bid is not strong enough as it is. While Canadian National is offering a higher premium, it is seen as more likely to run into antitrust scrutiny due to its larger size, meaning there is added risk to going with Canadian National.

Both suitors have proposed setting up a trust structure to allow Kansas City Southern shareholders to be paid prior to regulators signing off on the deal, an effort that would greatly reduce the antitrust risk. The Canadian Pacific trust has been approved by regulators, but Canadian National's proposal is still under consideration.