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Canadian Pacific, CN continue to lobby for merger support

Update:2021-05-12

Rivals Canadian Pacific (NYSE: CP) and CN (NYSE: CNI) are still at work seeking to convince the Surface Transportation Board (STB), industry stakeholders and Kansas City Southern (NYSE: KSU) shareholders which Canadian railway is the best company suited to merge with Kansas City Southern (KCS).


CP and KCS had announced plans to merge in March, while CN said in April that it is also interested in acquiring KCS. Both CP and CN are Canadian railways, and they propose that a merger with KCS would create a railroad that has operations across Canada, the U.S. Midwest and into Mexico.


CP said Monday that another 131 stakeholders have filed statements before STB supporting the merger between CP and KCS, bringing the total to close to 550 supporters. 


CP categorizes the statements as those who support a CP-KCS transaction and those opposing CN’s counterbid for KCS. The railroad is still anticipating STB, which must approve any major railroad merger, to complete its review by mid-2022.


“Customers and other supporters stated they expect the combination of CP and KCS would, among other benefits, invigorate transportation competition, expand access to existing and growing markets and provide new service offerings that would improve transit times and reliability along the Canada-U.S.-Mexico corridor,” CP said of the statements of support it received recently.


Last Friday, STB granted CP’s request to establish a voting trust as part of the process to acquire KCS. The voting trust would enable KCS to continue to run as an independent company without fear of a takeover as STB reviews the merger.


Meanwhile, CN on Friday said it had sent 100 additional letters of support to STB in favor of a merger between CN and KCS, putting the total to “well over 800.”


According to CN, 28 of the letters support a CN-KCS railroad, while 80 letters ask STB to approve CN’s voting trust. CN’s voting trust would function in a similar manner to CP’s voting trust structure. 


In a separate announcement on Friday, CN also said it placed an order for 1,000 new-generation, high-capacity grain hopper cars. The cars, which will be built by a TrinityRail manufacturing plant in Mexico, will “help meet the growing needs of North American grain farmers and demands of grain customers,” CN said. 


The purchase is part of a larger program to build and renew a fleet of 6,000 hopper cars over the next three years, CN said. Indeed, CN tied the purchase of the grain hopper cars — produced in Mexico by a U.S.-based company to serve Canadian grain producers — with its effort to merge with KCS.


“These cars will be manufactured in Mexico and will help move more grain across the CN rail network, which continues to make CN the embodiment of a true USMCA [U.S.-Mexico-Canada  trade agreement] railroad,” CN President and CEO JJ Ruest said. “Being an engine of North American economic growth and prosperity means that CN focuses continually on making strategic investments. Adding these 1,000 new-generation hopper cars to our fleet is a prime example of that. In addition to our superior proposal to combine with KCS, this is a step further in our vision of seamlessly connecting ports and rails in the United States, Mexico and Canada and of providing superior service, enhanced competition and new market access to move goods across North America efficiently and safely.”


CN also said it saw record Canadian grain volume shipments for 14 months straight.


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