STB blocks CN bid for Kansas City Southern

If you are interested in rail transport, you certainly will be interested in the proposed merger of the Kansas City Southern (KCS) rail line with a Canadian railroad.

Both Canadian Northern (CN) and Canadian Pacific (CP) have made offers to merge with KCS.

It’s important because either merger would let there be direct rail service between Canada and Mexico. Mexico is an important low-cost component manufacturing country, and Canada is a highly developed first-world economy, with also many intrnational connections. KCS has taken great pains over the last 10 years to develop service into and outof Mexico, and is probably the paramount player. Other major US railroads, such as BNSF, UP, and Norfolk Southern (NS), have not worked to build this capability to the same degree. So KCS is a kind of unique prize, especially for the Canadian railroads.

So far the story is one of competing buyers for KCS. CP made the first offer, but as time was running out for acceptance, CN came in with a larger offer. It involves some specialized and complex merger techniques. The Surface Transport Board (STB), a US government agency which regulates railroads in the US, has just rejected the merger, based on the form itis to take. This means that the two firms in the current merger discussions will need to try to rearrange their proposed deal structure to try to meet the STB objections. It also gives the alternate partner, CP, an opportunity to come back to the negotiations with KCS and make an offer more likely to succeed.

If there is a merger, what will happen? One thing you can be sure of is that over time the leader in the merger, the Canadian firm, will influence rail operations more and more. For shippers, it will be easier to make arrangements from Mexico to the US and Canada, and vice versa. It’s not clear how domestic US shippers will be affected. KCS serves a rural midwestern region that is not as well served by other railroads, and that will probably continue. ButKCS connections with other parts of the US may suffer a bit.

The combination of companies will be a powerhouse, putting the line in the class of UP and BNSF, the top major railroads in the US.

By Alex Whiteman and Ian Putzger 01/09/2021

STB blocks CN bid for Kansas City Southern – ‘not in the public interest’ – The Loadstar

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