CN Rail Is Close to $33 Billion Deal for K.C. Southern

(Bloomberg) -- Kansas City Southern is close to accepting a takeover proposal worth more than $33 billion from Canadian National Railway Co., according to people familiar with the matter.

This would top a $25 billion friendly offer from smaller rival Canadian Pacific Railway Ltd. that Kansas City Southern had agreed to in March.

The Kansas City-based railway could announce as early as Thursday that its board has determined Canadian National’s offer is superior, the people said, asking not be identified because the matter is private.

Canadian National’s bid of $325 a share consists of stock and cash, the company has said.

The plans aren’t final and could still change.

The decision presents Canadian Pacific Chief Executive Officer Keith Creel with the choice of increasing his offer or walking away from Kansas City Southern and pocketing a $700 million breakup fee under the previous agreement. Creel has said that his company couldn’t win a bidding war with its larger competitor.

The fight over Kansas City Southern, which gets about half its revenue from its Mexico operations, will determine which of the Canadian companies links tracks through its country, the U.S. and Mexico as a single railroad. Kansas City Southern, the smallest of the seven large North American rail carriers, became a target after it rejected a private equity bid last year.

Kansas City Southern’s decision came before the U.S. Surface Transportation Board weighed in on whether strict antitrust rules will govern Canadian National’s proposal and if a voting trust that’s key to the deal is acceptable.

The regulator had already ruled that a takeover by the smaller Canadian Pacific would be judged under more forgiving competition standards. The board also had approved Canadian Pacific’s use of a voting trust, which allows shareholders to get paid while awaiting full approval for the railroads to merge operations.

Representatives for Canadian National and Canadian Pacific declined to comment. Representatives for Kansas City Southern didn’t immediately respond to a request for comment. Reuters reported earlier Thursday that the companies were nearing a deal.

The takeover fight between two longtime rivals sees Canadian National’s Chief Executive Officer Jean-Jacques Ruest attempting to seize a prize long sought by Creel, who once served alongside him as Canadian National’s chief operating officer. It’s one of the biggest railway deals of the past two decades, with the winner gaining control of a sprawling network crossing three countries.

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