CN fires latest salvo in battle with CP Rail for U.S. railway Kansas City Southern

Photo: The Canadian Press

In this Nov. 5, 2004 file photo, the logo of Kansas City Southern is down on a restored 1954 Kansas City Southern passenger locomotive at Union Station in Kansas City, Mo. THE CANADIAN PRESS/AP-Norman Ng/The Kansas City Star via AP

Canadian National Railway Co. says it has filed a letter with the U.S. regulator that governs railway mergers declaring its bid for the Kansas City Southern railroad to be pro-competitive and in the public interest.

CN's letter says it also aims to "correct misleading statements" in a letter rival Canadian Pacific Railway Ltd. reported sending to the U.S. Surface Transportation Board on Thursday, in which it again called CN's offer "“illusory” and “anticompetitive.”

On Tuesday, Montreal-based CN announced a cash-and-stock bid valued at US$33.7 billion for Kansas City, Mo.-based KCS, topping one made last month by Calgary-based CP Rail valued at US$25 billion.

The two Canadian railways have been trading barbs since then, with CP insisting a CN-KCS merger can't be approved because CN is much larger than CP and its network has more overlap with KCS, and CN arguing that its offer is "superior" for both investors and shippers and therefore in the public interest.

CP says that more than 400 shippers have filed letters supporting its bid. In its letter Friday, CN says it has spoken to numerous customers and other stakeholders since announcing its offer and many want to write letters of support which CN will share with the STB "in coming days."

The two don't even agree on how big a CN-KCS combination would be — CN says it would be the fifth largest Class 1 railway (counting only U.S. operations governed by the STB), while CP says it would be third-largest if you count revenue from all assets in Canada, Mexico and the United States.

KCS's rail assets in Mexico have long made it a desirable takeover target.

"CN is confident that KCS will recognize the value of the CN proposal and will choose to partner with CN," says the CN letter sent Friday.

"But that is a choice for KCS and its shareholders to make. Under the terms of the KCS-CP merger agreement, CP has the opportunity to make a competitive counteroffer if it wishes and to make its pitch to KCS for why such a counteroffer would be superior."