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Kansas City Southern accepts new Canadian Pacific offer

The offer is worth less but is more likely to get the go-ahead from regulators

The battle to buy United States railroad Kansas City Southern (KCS) has taken a fresh turn after the company accepted an improved offer from Canadian Pacific (CP), trumping a higher value offer from rival Canadian National (CN).

CP had originally agreed to a US $29-billion deal to take over KCS in March, only for Canadian National (CN) to come in with an improved $33.6-billion deal in May, which KCS accepted. However, that agreement left open the option of switching for a “Company Superior Proposal” pending further offers, which allowed CP to strike a new agreement with KCS.

The new CP offer is worth a more modest $31 billion, but is thought more likely to secure the green light from regulators, who rejected a key part of the CN’s offer last month. CN had three days to make amendments to its deal to quash the rival CP proposal. Both offers include the assumption of about $3.8 billion in KCS debt.

Either deal will be a game changer for North American railway industry. Both agreements would connect ports in Mexico, the United States and Canada, and create a direct line between ports south of Mexico City through the continent to Canada, which both CN and CP cover comprehensively.

Canadian Pacific CEO Keith Creel said he was satisfied to reach a deal. “We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership,” he said.

“This merger proposal provides KCS stockholders greater regulatory and value certainty,” he added.

In Mexico, KCS transports freight to and from the ports of Tampico and Altamira in Tamaulipas, the port of Veracruz, and from the Pacific port of Lázaro Cárdenas in Michoacán through its wholly-owned subsidiary Kansas City Southern de México. But primarily it operates trains between the Valley of México and the El Bajío industrial region, taking automotive and industrial products into the United States via Texas.

CP began operating in 1881 and has approximately 20,100 kilometers of track in the United States and Canada, and acquired lines in the U.S. in 2009.

KCS is the smallest of the major freight railroads in the U.S, with 10,800 kilometers of track in the U.S. and Mexico.

CN is Canada’s largest railway company, spanning 32,831 kilometers of track. It gained control of the U.S. Illinois Central railroad in 1998, and Bill Gates is its biggest shareholder.

With reports from CBC

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